Srei Infrastructure is shelving the plan to float an initial public offering (IPO) for its arm Srei Equipment Finance due to lacklustre investor interest post the IL&FS crisis.

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In a complex process of merger and demerger, the equipment finance business will now get listed through a new corporate entity, Srei Asset Finance Ltd.

Srei Asset Finance will house the dominant businesses of the group including equipment finance, leasing and asset management portfolio. Consequently, currently listed Srei Infrastructure Finance would be left with infrastructure project finance and smaller operations like fee-based consultancy.

Under the restructuring process approved by the Boards, an existing minor entity, Srei Asset Reconstruction Pvt Ltd, would take over the equipment finance operations of Srei Infrastructure’s unit Srei Equipment Finance. 

It would also take over the asset management portfolio of the parent company.

Srei Asset Reconstruction would subsequently get renamed as Srei Asset Finance, which would then issue shares to Srei Infrastructure Finance shareholders including the promoters and the public. After that, these shares would get listed. Once the transfer of its business divisions is complete, Srei Equipment Finance would be a defunct company. 

“We couldn’t launch the IPO due to weak investor sentiment. But now with these steps, the equipment business would get listed. Srei Infra shareholders would get an opportunity to own the equipment finance business. And at a later stage, we plan to raise Rs 500 crore for this business and would be able to place shares with outside strategic including foreign investors into this business. The parent Srei Infrastructure would focus on project finance and fee-based activities,” said Hemant Kanoria, chairman and managing director of Srei Infrastructure Finance. Post the restructuring, 22.8% of Srei Asset Finance would be held by Srei Infra against 100% now in the equipment business.

The elaborate restructuring exercise was necessitated due to difficulty in getting shares of Srei Equipment Finance listed through a planned IPO because of investors’ apathy towards the Infrastructure sector following the IL&FS crisis.

“Many of our existing foreign investors are eager to invest in equipment finance business but are wary of taking exposure into the riskier infrastructure project finance. The segregation of these two business operations would help us attract such investors,” Kanoria said.

Srei Equipment Finance had in November 2017 filed a prospectus for diluting up to a maximum of 25% of the post-issue paid-up capital through a combination of fresh issue and offer for sale by parent Srei Infrastructure Finance that would have helped raise a targeted Rs 1,800-2,000 crore.