Srei May Have Lost Money on Viom Deal

Loss on ac­count of in­ter­est on loans given to 4 en­ti­ties hold­ing Viom shares; co says no loss, re­ceived .₹ 2,931 cr from ATC deal

The Economic Times - - Companies: Pursuit Of Profit - Deepali.Gupta@ times­group.com

Mum­bai: Srei Group’s sale of an 18% eco­nomic in­ter­est in a mo­bile tower com­pany for ₹ 2,931 crore to Amer­i­can Tower Cor­po­ra­tion — one of the head­line sale trans­ac­tions of FY16 — may not have re­sulted in a wind­fall for the Kolkata-based NBFC. In­stead, Srei Group that cashed out of their mi­nor­ity stake in Viom in Oc­to­ber of 2015, ap­pears to have in­curred a loss on the trade as per reg­u­la­tory fil­ings made by them and other en­ti­ties that held the shares of Viom, one of the coun­try’s largest in­de­pen­dent mo­bile in­fra­struc­ture com­pa­nies. The com­pany de­nied post­ing any loss on the trans­ac­tion.

THE TRANS­AC­TION

Listed Srei In­fra­struc­ture Fi­nance held 11% in Viom di­rectly while the re­main­ing 7% was held through four en­ti­ties — Op­ti­mum In­fratel, Con­fi­dent Solar, Resur­gent In­fratel, and Right Tow­ers. Of these, three, ac­cord­ing to Srei, are “in­vestee com­pa­nies” of Srei Al­ter­na­tive In­vest­ment Man­agers, a 100% arm of Srei In­fra while Con­fi­dent Solar is an in­di­rect arm of Op­u­lent Ven­ture Cap­i­tal Trust, also formed by the Srei group. In­vestee com­pa­nies, ac­cord­ing to Srei, refers to the fact that Srei Al­ter­na­tive In­vest­ment Man­agers, man­ages funds which own these com­pa­nies.

In Oc­to­ber 2015, Tatas and Srei, along with a clutch of PE in­vestors sold a 51% stake in Viom to ATC for ₹ 7,639 crore. Srei ex­ited en­tirely for ₹ 2,931 crore, giv­ing up man­age­ment con­trol while Tatas and some of the fi­nan­cial in­vestors par­tially mon­e­tised their stakes.

BUY­ING 7% IN VIOM

The loss es­sen­tially oc­curred be­cause of bor­row­ings by the four com­pa­nies to fund in­ter­est pay­ments on the money bor­rowed for buy­ing the ini­tial 7% stake. The trans­ac­tions took place in the fol­low­ing man­ner.

The four en­ti­ties did not have money to fund pur­chase of a 7% stake in Viom. It is un­clear ex­actly when these com­pa­nies ac­quired Viom shares, but the FY16 RoC fil­ings show they had bor­rowed money to fi­nance it, and col­lat­er­alised the loan with Viom shares. Hence they bor­rowed ₹ 1,005 crore. They had to pay in­ter­est ev­ery year on this to lenders, in­clud­ing Srei In­fra Fi­nance.

But they were un­able to gen­er­ate the money to do this given that they had no source of in­come. So, they bor­rowed ₹ 570 crore more to pay in­ter­est un­til FY16 to Srei and any other lenders. Srei earned this an­nual in­come but the four com­pa­nies in­curred ad­di­tional in­ter­est ex­pen­di­ture of ₹ 570 crore. Now, the trans­ac­tion with ATC was done at a value of ₹ 2,931 crore. As per the bal­ance sheet of March 2015, the cost of ac­qui­si­tion of 11% in Viom for Srei was ₹ 1,598 crore while ₹ 1,005 crore was in­curred by the 4 en­ti­ties for the re­main­ing 7%. To­gether, this comes to ₹ 2,603 crore. Since the sale was for ₹ 2,931 crore, it ap­pears that Srei and its four in­vestee com­pa­nies made a profit of ₹ 328 crore.

But adding the ad­di­tional ex­pen- di­ture of ₹ 570 crore on an­nual in­ter­est pay­ment changes the equa­tion. The cost of hold­ing Viom shares for the four en­ti­ties ap­pears to be much higher. In­stead of ₹ 1,005 crore, it would have been ₹ 1,575 crore. This takes the ac­tual ac­qui­si­tion cost of the en­tire 18% Viom stake to ₹ 3,173 crore (`1,598 crore + ₹ 1,005 crore + ₹ 570 crore ).

Srei In­fra Fi­nance con­firmed it had lent money to the four com­pa­nies and re­cov­ered in­ter­est from them an­nu­ally. “Srei held 11.07% in Viom and var­i­ous other en­ti­ties had the bal­ance,” the Srei spokesman said. “Srei has not in­curred any loss on Viom stake sale. It has re­alised about ₹ 1,800 crore (for its 11.07% stake) and the other en­ti­ties made around ₹ 1,131 crore.” When asked how Srei ar­rived at the ac­qui­si­tion price of shares, the spokesman said, “it (Srei) ar­rived at the ac­qui­si­tion price which was his­tor­i­cal.” The spokesman also de­nied that di­rec­tors of the four en­ti­ties are in any way re­lated to Srei. He also added that the 4 other en­ti­ties are not re­lated to Srei or its sub­sidiary “(The four com­pa­nies) are not sub­sidiaries of Srei, the di­rec­tors are not re­lated to Srei, the of­fices are not of Srei. We once again re­it­er­ate that the com­pa­nies, men­tioned are in­vestee com­pa­nies where SAIML as fund man­ager has only in­vested the cor­pus funds, which they are man­ag­ing. SAIML has no other re­la­tion­ship, be­sides man­ag­ing the fund,” said the Srei spokesman. Ma­hesh Singhi, founder and man­ag­ing di­rec­tor of Singhi Ad­vi­sors, a global in­vest­ment bank­ing firm fo­cused on merg­ers & ac­qui­si­tions, said, “They may re­alise a profit on the book in­vest­ment, but ac­crued losses on 7% shares in other com­pa­nies were largely be­cause of pro­vid­ing for the hold­ing cost (in­ter­est), and on the net ba­sis they might have made losses.”

Srei In­fra Fi­nance spokesman said that the four en­ti­ties are not in any way re­lated to Srei or its sub­sidiary

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