Lenders' Dilemma: Restart Srei sale or review non-compliant bids

Lenders to the twin Srei companies are debating whether to restart the sale process or evaluate the non-compliant resolution plans received from two bidders, two people aware of the development told ET.

The third option before the lenders is to liquidate Srei Equipment Finance and Srei Infrastructure Finance, companies undergoing insolvency proceedings since last October. Lenders discussed these three options at meetings held on Wednesday and Thursday.

The administrator of Srei companies received two resolution plans - from Arena Investors in partnership with Varde Partners, and Shon Randhawa with Rajesh Viren Shah. The Arena-Varde-led team submitted a ₹150-crore earnest money deposit (EMD), but it did not comply with the terms outlined in the request for proposal (RFP). The Shon Randhawa-led consortium failed to submit ₹150 crore by way of EMD, the people said.

The administrator of Srei, Rajnish Sharma, called a lenders' meeting to decide on the 'way forward', said a stock exchange notice.

The administrator did not respond to ET's request for comments until Thursday press time.

The RFP stated that ₹150 crore EMD would be forfeited if the Reserve Bank of India (RBI) rejects the bidder. The Arena-led consortium submitted a conditional EMD that would be valid for six months. Lenders have termed the Arena-led consortium's EMD as non-compliant, theoretically invalidating the resolution offer. Lenders wanted the bidder to submit EMD without any conditions by Monday evening. Both bidders failed to submit unconditional EMDs, as reported by ET on September 14.

"Lenders had a two-day meeting which remained inconclusive on the future course of action," said a person cited above. "They will meet again this week to discuss this matter."

A majority of lenders did not favour accepting a non-compliant EMD since that would require changing the terms of the RFP and reinviting bids. Some lenders, however, were worried that the alternative option - liquidation of the twin Srei companies - will result in lower recoveries.

Sharma is likely to invite lenders to vote on the matter early next week, the people said. Both companies have ₹2,000 crore cash balance, which is primarily due to payments made by the borrowers after it was admitted for insolvency.

The administrator has admitted consolidated claims of ₹32,750 crore from financial creditors, and this includes a ₹257-crore claim from Srei Equipment Finance.

Disclosures made by the administrator to the stock exchange show that consultant BDO India has classified several transactions totalling more than ₹5,000 crore as fraudulent. In the last week of July, the administrator revised the terms of the RFRP, stating that the resolution applicant should assign a value to the proceeds that could be recovered from the transactions categorised as fraudulent, preferential, or avoidance.