See no risk of loan default; assets well secured: SREI

Hemant Kanoria, CMD, SREI Infrastructure told CNBC-TV18, the company has been careful in financing both road and power sector projects and is not facing the risk of loan default for any of these.

"We don’t have any stressed portfolio in the road or power sector," he said. Almost 10 -12 percent of the company's loan book comprises of road projects.
Recently, GMR, GVK pulled out of National Highways Authority of India (NHAI) projects on the back of delayed environment clearances by the environment ministry. According to sources, NHAI has moved Supreme Court against the environment ministry. Reacting to this issue, Kanoria pointed out that NHAI has been proactive in resolving clearance problems.   Further he added, the Kingfisher (KFA) debt is well secured and the company is not worried about it. ICICI Bank sold the entire KFA loan to SREI’s debt fund, which has a major stake in the United Spirits Ltd. The company can liquidate assets whenever required. Below is an edited transcript of Hemant Kanoria’s interview on CNBC-TV18. Q: Let’s start with asset quality because there have been lots of developments over the last few days from GMR, GVK - projects being handed back, cancelled. Do you fear that some of your exposures might turn sticky? A: We have been very careful in financing the road sector. We don’t have any stressed portfolio in the road sector because right from the beginning we have seen that wherever the traffic estimation was a little aggressive, people were going in for aggressive bidding. So we kept away from financing those particular projects. Therefore, we don’t have any assets in our portfolio where we need to be worried. We have been very careful on the power sector also. We don’t have any portfolio where we are either worried about the power or the road sector at this particular juncture.

Q: What about your exposure to Kingfisher that you picked from ICICI Bank? In lights of recent events, could there be any kind of problems there? A: The Kingfisher debt is not in our books. It is a fund which the venture capital company, a 100 percent subsidiary of SREI is managing. There are other investors in that particular debt fund and it is well secured because still United Spirits Ltd (USL) share prices are quite high compared to whatever we have given as a loan. Therefore, I don’t see any stress there. If we need to liquidate at any time, we would be having a spill over which will result in a very high profit. We can’t do that, but we are very well secured on that. Q: You have the first right to sell the United Spirit shares to any company that buys it or to sell it in the open market on a prescribed date. Have you decided whether or not you will participate once the open offer happens because that has been delayed? A: We don’t have any restrictions. The loan that we have given is for a particular tenure. From the debt fund, whatever they have invested in and as there are other investors also, we have to take a call from all the investors who are there, whether they would like to liquidate it immediately or hold up.

At present there is no risk because of the shares which have been pledged and there are other shares also, there are shares of Kingfisher and other securities as well. So there is nothing to get worried about. Our investors are also there in the debt fund, none of them seem to be raising any panic button at this particular juncture. Everyone is watching it because the assets are well secured.

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Q: What is your total exposure to road projects at this point? The problem is not aggressive bidding or high tolling expectations but the fact that projects are just not moving because of issues with the environment ministry. How do you get around that? A: I think that is one particular risk which is there. Whenever we are bidding for any kind of road projects, we also have from SREI, participated along with various constituents and clients in many of the road projects by taking equity between 10 - 49 percent through funds. This is one risk and you have to factor it as the environment clearances or the forest clearance may not come in time. If it does not come in time, you have a proactive NHAI to see that the penalties don’t start. If it does not start then you can wait for those particular moments and there are some stretches where you may not get the clearances on time. That is an operational risk which any bidder has to pre-empt and take. In the last few months, NHAI has also been very proactive in trying to sort the problems instead of just blaming each other and that is good. There are problems in getting clearance from the environment and forest and that needs to be ironed out. It needs to be seen that how it can be stream lined, how process can be set up by the environment ministry and the forest department so that the clearances can come in very fast.

If the clearances will not be given, the NHAI or the concessioners are told much well in advance that you will not get clearance in these particular stretches. So, you plan a detour or if it is not possible then do not take up those particular projects. But, I would like to give credit to NHAI that they are getting very proactive. Q: You now have an Indian benchmark after the Bharti Infratel initial public offering (IPO) for Viom; any plans of monetising it in the near future? A: Yes. We have been thinking about it and this particular year if the capital markets remain as it is and show a good sign of improvement as well. Viom is there, we have a road portfolio, we have some investments in the power sector so we may look at diluting some stake through the IPO market in some of these particular cases. Wherever the IPO is not possible, we will look at private equity investors or pension funds and are in discussion with many of them. So, we would look at liquidating some part of the portfolio to get in cash into SREI and improve the profitability further. Q: By the end of this month you will also have more clarity on the final bank licensing norms – how do you rate your chances? A: That is very difficult to say, but we are going to apply and if we fulfill the criteria then it is all up to the RBI and the government to take a decision. But we would definitely apply because we have built up a strong non banking financial company (NBFC) portfolio, we are in the businesses where we see that a banking license will enable to move faster. We have created all these centers in the rural areas so our concentration would be primarily in the rural areas as the government talks about the financial inclusion and the bottom of the pyramid. In the last five years through shares hedge, we have built that up very-very strongly. So we would definitely apply and after that it is difficult to say whether we will get it or not.