As per the annual report released by the firm recently, the company has provided a guarantee of Rs 870 crore for non-convertible debentures (NCDs) issued by SVL, an unlisted entity belonging to the financial conglomerate.
Shares of Shriram Transport Finance tanked around 14 percent in morning trade on Wednesday as investors turned cautious of a guarantee of Rs 870 crore provided by the firm for its unlisted subsidiary.
The shares touched an intraday low of Rs 1,112.45, on the BSE.
As per the annual report released by the firm recently, the company has provided a guarantee of Rs 870 crore for non-convertible debentures (NCDs) issued by SVL, an unlisted entity belonging to the financial conglomerate.
Research firm Jefferies, in its research note, explained that SVL had issued Rs 650 crore worth zero coupon NCDs in June 2015, which were maturing next year. The outstanding guarantee includes accrued interest, it said, adding that its previous annual reports do not include disclosures around the guarantee.
“Cash flows at SVL, subsidiaries may be inadequate to service the NCD, but other companies within Shriram group may potentially refinance/aid in repayment. However, if SVL defaults on the NCDs and the guarantee is invoked, potential hit to Shriram Transport’s BV could be around 4% post tax (Rs 29/ share),” analysts at the firm wrote in their report. It also sees the need to raise additional capital as provisioning could rise for the NBFC.
The management of Shriram Transport tried to allay fears of investors, but the Street may not be very convinced. The stock has maintained its downturn.
“The maturity of loans is still a year away and we are quite confident of it being serviced. We also don’t see any need for provisioning as well,” Umesh Revankar, MD & CEO of Shriram Transport Finance told CNBC-TV18 in an interview. He further added that there are adequate securities against the guarantees given by the firm.Meanwhile, experts such as Manish Sonthalia of Motilal Oswal AMC also said that there is a major issue as far as credit appraisal is concerned in this case
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