PE Funds Propose $250-Million Capital Infusion Into Srei Equipment Finance

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Srei Equipment Finance Ltd. said it has received expressions of interest from two international private equity firms for a $250 million capital infusion: U.S.-based Arena Investors LLP and Singapore’s Makara Capital Partners.

The company’s strategic coordination committee will be discuss with potential investors, while global consultancy firm EY will advise the committee, the Kolkata-based firm said in a statement on April 8.

The capital infusion “will provide cushion against the pandemic induced stress in the Indian financial services space,” the statement said.

Arena Investors is an investment firm with $2.2 billion of committed capital. It also participates in special situations as part of its investment strategy. Makara Capital Partners, founded in 2005, specialises in fund management, private equity as well as structuring and financing with a core focus on innovation, infrastructure and energy.

The proposal to infuse funds comes at a time when lenders led by UCO Bank are discussing a potential resolution plan, to combat the stress in SREI Group’s lending arms. The two lending businesses—Srei Infrastructure Finance Ltd and Srei Equipment Finance—have faced considerable stress over the last one year as their borrowers have been unable to repay their dues.

This led to a scheme of arrangement that the group filed with its lenders, where nearly 75% of the bank debt to Srei Equipment Finance will be converted into non-convertible debentures. The banks are yet to approve the scheme. BloombergQuint had earlier reported that the banks are mulling options to realign their debt repayment schedule in SREI Group’s lending businesses, which included an option to change ownership of the firms. A definitive plan is yet to emerge.

This week, Brickwork Ratings had downgraded perpetual debt instruments issued by Srei Infrastructure Finance to default grade from BBB- before. The action by Brickwork follows similar downgrades by CARE Ratings and Acuite Ratings & Research last month.

As on Sept. 30, 2020, consolidated borrowings of Srei Infrastructure stood at Rs 31,435 crore compared with Rs 33,108 crore a year ago. Bank borrowings contributed 59.49% of total borrowings, while non-convertible debentures stood at 13.27%. Srei Equipment Finance is a 100% subsidiary of Srei Infrastructure Finance.

In the quarter ended December, Srei Infrastructure reported a consolidated net loss of Rs 3,811 crore compared with a net profit of Rs 60 crore a year ago. Total income fell 66% year-on-year to Rs 484.35 crore in the third quarter. Expenses rose sharply, as costs due to impairment of loans rose to Rs 2,833 crore compared with Rs 26 crore a year ago.

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