Kolkata-based Srei Infrastructure has signed an MoU to initiate preliminary discussions for acquiring Essel Mutual Fund. In an interview, Hemant Kanoria, Chairman, Srei Infrastructure Finance, tells Ishita Ayan Dutt and Namrata Acharya, that Srei has already got a mutual fund arm, with an approval for a debt fund. However, since there were not enough investors for the debt fund, the product was not launched. Srei is now exploring to revive the mutual fund business through anh acquisition. Edited excerpts:
Q. What is your outlook for the infrastructure sector post-elections?
Our outlook for the infrastructure industry continues to remain positive. The manifestos of BJP and Congress have given sufficient thrust to infrastructure. The BJP manifesto outlays an investment of Rs 100 trillion in the infrastructure sector by 2024. Congress manifesto also promised to modernise all outdated railway infrastructure, increase the manufacturing sector's share in India's GDP and make India a manufacturing hub for the world. Hence, it is apparent that infrastructure will continue to be a focus area for the new government, irrespective of whichever political party comes to power.
Q. The NBFC sector late last year plunged into a crisis. Did it not have any impact on your business? What is your outlook going forward?
Fortunately, our business was not severely impacted by the crisis. Also from an industry point of view, I think the worst is behind us. Companies that have emerged out of the crisis have evolved their own business model. We have also aligned our business model in consonance with the on-going infrastructure projects in the country and structuring more transactions through co-lending arrangements with banks. In view of the co-financing, our risk weighted returns will improve and will augment our profits.
Q. Srei also plans to acquire Essel's mutual fund business. Can you share details?
Srei Mutual Fund Asset Management Private Limited, a subsidiary of Srei Infrastructure Finance Limited, has been exploring opportunities in the mutual fund space and I understand that their board has decided to enter into a preliminary non-binding term sheet for acquisition of Essel Mutual Fund. Currently, the due diligence process is going on.
Q. Is the mutual fund subsidiary functional?
The mutual fund subsidiary has an approval to launch a debt fund. We got it 4 to 5 years back, but we did not launch that mutual fund. We did not, because the kind of investors that would be coming in an infrastructure debt fund would not be sufficient to make it viable. We are exploring the opportunity to acquire Essel’s mutual fund business, and the talks are in very preliminary stage.
Q. The Supreme Court has struck down the Reserve Bank of India's (RBI) circular that gave defaulting companies 180 days to agree on a resolution plan with lenders or be taken to bankruptcy to recover debt of Rs 2,000 crore and above. What are your views on this?
The referred circular was not practical. Businesses have their cycles and problems and the lenders must take decisions on a case by case basis. Some companies may require to be placed in NCLT (National Company Law Tribunal) while in certain other cases resolution can be arrived through bilateral discussions between the borrower and lenders. The Supreme Court's decision provides flexibility to lenders and borrowers to find resolutions.
Q. The NCLT process is now more than two years old. Has it been beneficial?
NCLT process has definitely been beneficial and helped in arriving at decisions. A process for resolutions has been promulgated and implemented successfully. It was a critical need for our country. The only bottleneck, in my opinion, has been the Section 29A of IBC, which prevents promoters of companies from participating in resolutions. I don't think it is fair. If a promoter has indulged in some fraudulent practice then he should be prevented from participation. However, if the business has failed due to the external environment, market conditions, changes in government policies, etc. then it is not fair to stop the promoter from bidding for the company. Someone who has been a victim of circumstances should not be treated in the similar fashion as a fraudster. Also it is pertinent to note that every company which goes to NCLT does not mean that the promoter has siphoned off the money. The maturity to segregate wheat from the chaff is important.
Q. Coming to Greenfield projects, do you expect them to take off post elections?
I am not very enthusiastic of Greenfield projects at this juncture. Unless the new government decides to strategically promote Greenfield projects and think differently in supporting the industry, I am not sanguine that Greenfield projects will take off.
Q. What are some of the biggest hurdles for Greenfield projects?
It is primarily the time taken to get all necessary clearances and thousands of hurdles during implementation. We have seen that many infrastructure projects have become sick because the interest during construction ("IDC") is almost 50-75% of the project cost. This makes a Greenfield project unviable. Some of the state governments have attempted to resolve this by introducing a law which provides deemed clearance. I think this should be implemented across the country for all projects whether industry, infrastructure, or real estate . It is important to have this kind of discipline.
Q. Are you planning to enter in new areas of business?
At this point of time, we are not looking at any new areas. We will continue to focus on our equipment financing business because the opportunity in the business is substantially large. Many infrastructure players like IDFC and many banks have exited the infrastructure financing space in the recent past. Though we had also slowed down our disbursements in the infrastructure projects for the last six years, but we feel that going forward, after the new government comes in, it will take off again. However, our equipment financing business is growing and will continue to grow.