IRDA approves acquisition of Reliance Capital's insurance businesses by Hinduja

15 May 2024 , 11:04 AM

The Insurance Regulatory and Development Authority (IRDA) has approved the transfer of shares in Reliance Capital’s insurance subsidiaries to the Hinduja Group, which is a significant step in resolving the Reliance Capital insolvency process, according to legal experts.

Initially, IRDA had reservations about the proposed structure for Reliance Capital’s insurance subsidiaries. The approval was granted for the sale of stakes in Reliance General Insurance, Reliance Health Insurance, and Reliance Nippon Life Insurance to Hinduja Group’s Aasia Enterprises.

On May 10, IRDA cleared the stake transfer in Reliance Capital’s insurance arms. According to the approval, the Hindujas must complete the share purchase in Reliance Nippon Life Insurance within three months. Post-transaction, Reliance Capital, Nippon Life Insurance, and Aasia Enterprises LLP will remain promoters, as stipulated by IRDA.

The completion of the share transfer must be reported to IRDA with all details submitted post-transaction.

IRDA had earlier communicated its reservations to the administrator of Reliance Capital, Nageshwara Rao Y, emphasizing the need for promoters to invest their own capital to ensure the protection of policyholders.

In February 2022, 55 companies expressed interest in Reliance Capital, and by August 2022, 14 submitted non-binding bids. By December 2022, the final bids were submitted by the Hindujas, Torrent Investments, the Cosmea-Piramal consortium, and Singapore’s Oaktree Capital.

The initial bids were below the company’s liquidation value, prompting the committee of creditors (CoC) to hold an e-auction. The Hinduja Group, Oaktree, and Torrent Investments emerged as the top bidders.

Lenders estimated Reliance Capital’s liquidation value at around ₹12,500 Crore. IIHL’s bid, being the sole one for Reliance Capital, is under consideration by the lenders.

In the second auction held on April 26, 2023, IIHL emerged as the highest bidder, surpassing Torrent Investments’ ₹8,640 Crore offer from the first round. Torrent and Oaktree did not participate in the second round.

The second auction faced multiple postponements due to lender concerns. Initially set for April 4, it was postponed to April 11, and then to April 26.

The minimum bid for the second auction was set at ₹9,500 Crore, with a required cash share of at least ₹8,000 Crore. Bid increments were structured to increase by ₹500 Crore after the first round and by ₹250 Crore in subsequent rounds.

The Reserve Bank of India (RBI) had superseded Reliance Capital’s board on November 29, 2021, due to payment defaults and governance issues, appointing Nageswara Rao Y as the administrator for the Corporate Insolvency Resolution Process (CIRP).

Among the 29 banks that lent to Reliance Capital, YES Bank lent ₹3,340 Crore, Bank of Baroda ₹2,290 Crore, and IndusInd Bank was also a creditor. Morgan Stanley reported that Reliance Capital owes ₹52,490 Crore to creditors, with ₹21,070 Crore owed to banks.

Reliance Capital is the third major non-banking finance company to undergo bankruptcy proceedings initiated by the RBI, following Dewan Housing Finance Corporation and Srei Group NBFC. The RBI subsequently filed for CIRP initiation at the Mumbai bench of the National Company Law Tribunal (NCLT).

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