Concerns about the source of funding for the acquisition of RCAP by Hinduja-led IIHL are increased by IRDAI's denial

16 Oct 2023 , 11:04 AM

IndusInd International Holdings Ltd (IIHL), the Hinduja Group company that won the bid to acquire Reliance Capital (RCAP), received a letter from the RBI-appointed Administrator of RCAP voicing concerns about the business plan and source of money, news reports said. 

The Insurance Regulatory and Development Authority of India (IRDAI) turned down IIHL’s proposal to raise money for the RCAP acquisition by creating a pledge over the shares of Reliance General Insurance (RGIC) and Reliance Nippon Life Insurance (RNLIC), reports said. As a result, the Administrator wrote the letter.

Subsidiaries of the financially troubled financial services company include RGIC and RNLIC. According to reports, the Administrator instructed IIHL, the winning resolution bidder, to submit a new application with its funding source and business strategy, which does not call for creating a pledge over the shares of RGIC and RNLIC.

The Administrator has informed IIHL that IRDAI told them in their meeting on October 9 that no request for a change in control would be given consideration if the acquisition’s funding source calls for the creation of a pledge over insurance company stock.

According to news reports, the Administrator has also requested that IIHL submit a new application for a change in control of the insurance companies (RGIC and RNLIC), along with information about the funding source and the company’s business plan, which does not include a provision for the creation of a pledge over the stock of the RCAP insurance companies.

To finance the purchase of RCAP, Hinduja Group is obtaining a USD 850 million debt from the top overseas funds and banks. According to insiders who talked to news outlets, the group wants to raise this money using RCAP’s assets, particularly its 100% holding in RGIC and its 51% stake in RNLIC, which together account for more than 90% of the value of the indebted company.

According to reports, IIHL requested permission from the insurance regulator to change the ownership of RGIC and RNLIC and create a promise over those companies’ shares in order to acquire money from investors.

Nevertheless, the regulator rejected this. The conclusion of the effective resolution of Reliance Capital requires the IRDAI’s approval.

IIHL is in discussions with a few foreign banks about raising USD 850 million.

On November 29, 2021, the Reserve Bank of India (RBI) replaced the Reliance Capital board due to payment failures and significant governance concerns. 

Nageswara Rao Y was chosen by the RBI to serve as the Administrator for the company’s Corporate Insolvency Resolution Process (CIRP). The third significant non-banking financial institution (NBFC) against which the central bank has commenced insolvency proceedings under IBC is Reliance Capital.

Srei Group NBFC and Dewan Housing Finance Corporation (DHFL) were the other two. At the Mumbai bench of NCLT, the central bank later submitted an application for the initiation of CIRP against the company. The RBI-appointed Administrator requested expressions of interest for the sale of Reliance Capital in February of last year.

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