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
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.
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