State Bank of India (SBI)’s reported move to convert its outstanding debt into equity in Supreme Infrastructure India Limited (SIIL) has invited sharp criticism from the Opposition Congress on Tuesday which has sought the Reserve Bank of India’s (RBI) intervention in the matter.
Congress leader Jairam Ramesh said in an X post, “This provision sets a dangerous precedent in India’s corporate debt landscape. It encourages other failing companies to seek similar deals, where they can retain control and value even after a major failure.”
While questioning the effectiveness of India’s resolution framework and the role of public sector banks in managing distressed assets, Ramesh said, “SBI seems to be aligning itself with the interests of the defaulting lender (SIIL) instead of prioritizing the recovery of public funds.”
There was no response from SBI or SIIL on this issue on Tuesday.
The Mumbai-headquartered company is promoted by Bhawani Shankar Sharma, and has been missing for a decade. Sharma took the company public during the infrastructure boom in 2007.
The company first reported a net loss on a consolidated basis for the financial year (FY) 2014-15. Its losses have since ballooned leading to a rapid erosion of its net worth to make it debt-free. The Sharma family had a 34.68 percent stake in the company at the end of June this year, and the rest of their stake in the company has been pledged to lenders.
The company reported a total loss of Rs 1175 crore in FY24 on total sales of Rs 58.73 crore. In comparison, it reported a net loss of Rs 14.36 crore in FY15 on total sales of Rs 1814 crore that year.
As a result of consequential losses its value decreased from Rs 848.6 crore at the end of FY14 to (negative) Rs 4870.5 crore at the end of FY24. The company’s mounting losses are due to a combination of a steady decline in revenue and a steady increase in its interest burden which is also a result of its large debt arrears.
The company has been underperforming since FY15 when its interest debt exceeded its operating profit for the first time. The gap between the two has widened over the years.
Engaged in infrastructure projects, according to SIIL’s FY23 annual report, the company has ongoing projects worth Rs 3392.25 crore in roads, bridges and other projects. As previous projects in sectors such as railways, electricity, water and drainage infrastructure have been completed.
In FY24, the company reported an operating loss of Rs 32.67 crore against an interest liability of Rs 1135 crore. In the last ten years, the company had an accumulated interest burden of Rs 6555 crore compared to an accumulated operating profit of Rs 877.4 crore.
The company’s long-term debt was placed in the speculative grade for the first time in 2014 by India Ratings and Research and has been in that category ever since. Before that in 2010, CARE Ratings had raised red flags about the company’s ability to honor its short-term debt and described it as risk prone. The company’s credit rating was last assessed in March 2018.
The company’s balance sheet and cash flow data however suggest that Higher Infrastructure will incur new borrowings in FY 2022-23. Overall, the company’s borrowings increased by Rs 627.3 crore over the period between FY21 and FY23.
First published: Sep 24 2024 | 8:50 p.m IST