SREI Infra announced that it is keen to offload the United Spirits (USL) shares it holds as underlying security on the Rs 430 crore Kingfisher loan it bought from ICICI Bank. SREI Infra hopes to make a return of 15-17 percent by selling the collateral to Diageo. The deal will be done only after the Competition Commission of India (CCI) nod for the Diageo open offer. Sunil Kanoria, CMD, SREI Infra spoke to CNBC-TV18 regarding the KFA collateral sale plans.
Below is an edited transcript of Sunil Kanoria's interview on CNBC-TV18
Q: You said you have made a high return on this sell of the loan. What kind of a return are we talking about?
A: At present, it is too early because the transaction has been cleared by Securities and Exchange Board of India (Sebi), but it is still with the CCI. Once the transaction gets completed and cleared by the CCI then anything can happen on this transaction. So, it is a little premature for an announcement at this juncture that the deal is just happening.
Q: What kind of timeline are you looking at for getting those approvals?
A: We are not looking at those approvals. It is for the USL management to get the approval from CCI. The debt fund has invested loan of Kingfisher through, there is an underlying security of the shares of USL. Therefore, as soon as the transaction happens, it will get liquidated.
Q: You had conversations with USL about the deal, maybe even with Diageo. Is this a precursor to that deal that we are seeing between USL and Diageo?
A: That is very difficult to comment. The best people to comment on that would be USL.
Q: This loan has been backed by USL shares, can you tell us a little bit about the nature of these shares? Are these some of those shares that had been pledged by USL?
A: Any loan given would be pledge of shares and that is but normal in any loan extension which takes places. So, here also, the shares of USL have been pledged against the loan which has been given.
Q: Are there tranches to this transaction, who have you got into a principle agreement with? Is it with USL or is it with Diageo?
A: As soon as the transaction happens, there is a choice for selling off. The loan has to be repaid by Kingfisher and if they are repaying it, they may want us to sell the shares either in the market or to Diageo or USL buys it back. Those are options which are available to the management of USL. From the perspective of a lender and the fund when they have invested, the debt fund they have seen from the perspective that whether the security is there or not. So, it is properly secured.
Q: Are you suggesting that there is no principle agreement that has been signed and this is just something that you have verbally agreed to? Can you tell us a little more about this transaction, the proposed transaction?
A: The nature of the transaction is very simple. The debt fund which SREI manages has invested and there are various investors in the debt fund. The debt fund had bought over these particular loans from ICICI Bank and the underlying security is the shares of USL. Now, when the USL shares get sold off to Diageo or the management of USL may buy it back from us from the funds. If they buy it back from the fund or it gets sold to Diageo the proceeds will come into the fund and the fund will then redeem the amount and the investors will get their money back, whoever has invested. So, it is a very simple transaction.
Q: All you fund managers have worked very closely and always have an idea of the internal rate of return (IRRs) that you want. This is a loan that you bought from ICICI Bank in July last year. You were saying it is premature, there are still approvals that need to be in place, but what kind of an IRR are we looking at as a rough range?
A: That is very difficult to say now. IRR will be in mid-teens and above because if someone has taken a risk, they would need to have a proper IRR. So, it will be in mid-teens.
Q: Is 20-25 percent what we are talking about?
A: 20-25 percent is not mid-teens. Mid-teens would be somewhere about 15-17 percent.