State Bank of India’s (SBI’s) reported move to convert its outstanding debt into equity in Supreme Infrastructure India Limited (SIIL) has invited sharp criticism from Opposition Congress which on Tuesday sought the intervention of Reserve Bank of India (RBI) into the matter.
Congress leader Jairam Ramesh said in a post on X, “This arrangement creates a dangerous precedent in India’s corporate debt landscape. It encourages other defaulting companies to seek similar deals, where they can retain control and value even after significant defaults.”
While questioning the effectiveness of India’s insolvency resolution framework and the role of public sector banks in managing distressed assets, Ramesh said, “The SBI appears to be aligning itself with the interests of the defaulting borrower (SIIL) rather than prioritising the recovery of public funds.”
There was no response from SBI or SIIL on this matter on Tuesday.
The Mumbai-headquartered company is promoted by Bhawani Shankar Sharma, and it has been in loss for a decade now. Sharma took the company to public during the infrastructure boom in 2007.
The company first reported net loss on consolidated basis in financial year (FY) 2014-15. Its losses have since ballooned leading to a rapid erosion in its net worth making it insolvent. The Sharma family owned 34.68 per cent stake in the company at the end of June this year, and their entire stake in the company is pledged with lenders.
The company reported a net loss of Rs 1175 crore in FY24 on net sales of Rs 58.73 crore. In comparison, it had reported a net loss of Rs 14.36 crore in FY15 on a net sale of Rs 1814 crore that year.
As a result of consecutive losses its net worth declined from Rs 848.6 crore at the end of FY14 to a (negative) Rs 4870.5 crore at the end of FY24. The mounting losses of the company is due to a combination of a steady contraction in its revenues and a steady rise in its interest burden that in turn is the result of its high outstanding debt.
The company has been in technical default since FY15 when its interest liability exceeded its operating profits for the first time. The gap between the two has only widened over the years.
Engaged in infrastructure projects, according to SIIL’s annual report for FY23, the company had ongoing projects worth Rs 3392.25 crore across roads, bridges and other projects. With past completed projects in sectors such as railways, power, water and drainage infrastructure.
In FY24, the company reported operating loss of Rs 32.67 crore compared to interest liability of Rs 1135 crore. In the last ten years, the company had a cumulative interest burden of Rs 6555 crore compared to cumulative operating profit of Rs 877.4 crore.
The company’s long-term debt was put into speculative grade for the first in 2014 by India Ratings and Research and it has been in that category ever since. Prior to that in 2010, CARE Ratings had raised red flags about the company’s ability to honour its short-term debt and classified it as risk prone. The company debt programme was last rated in March 2018.
The company’s balance sheet and its funds flow data however suggest that Supreme Infrastructure made fresh borrowings as early as in FY 2022-23. In all, the company’s borrowings were up Rs 627.3 crore cumulatively between FY21 and FY23.
First Published: Sep 24 2024 | 8:50 PM IST
