Reliance Capital debt resolution may be delayed over subsidiaries

Options of settling the finances of eight units of Reliance Capital that are financially sound leads to disagreement between bidders and administrator.

The debt resolution of Reliance Capital has slowed down after differences between lenders and the administrator over settling the finances of the company’s subsidiaries. A request for documenting the resolution plan has not been issued to some 50 companies that submitted expressions of interest in March for Reliance Capital.

As part of the process, the administrator invited expressions under two options: one was to submit a consolidated Reliance Capital-level resolution as a going concern basis and another was to submit separate plans for eight business clusters/subsidiaries.

A banking source said the request  for resolution plan document (RFRP) was to be issued on April 5 by the administrator to the applicants but differences have emerged on whether to invite price bids for individual clusters under the Option 2 and how cluster level bidders under the Option 2 can submit a Insolvency and Bankruptcy Code compliant plan.

The key clusters are: Reliance General Insurance, Reliance Health Insurance, Reliance Nippon Life Insurance, Reliance Asset Reconstruction, and Reliance Securities. According to IBC 2016, a compliant plan cannot be submitted under Option 2 (for individual business clusters) as there is no requirement to turn around these companies. Under the circumstances, only Option 1—for Reliance Capital--plans can be considered under IBC, said a source close to the development.

There are differences over whether the committee of creditors (CoC) intends to force consortium formation on cluster-level bidders to submit a consolidated company--level resolution plan—an option the administrator has opposed. Lenders and administrators are also negotiating the mechanism for formation of consortium of cluster level bidders.

The issues between Administrator and the COC on the RFRP document are:

* Whether or not to invite price bids for individual clusters under Option 2.

* How the cluster level bidders under Option 2 submit a IBC compliant plan

* Mechanism for formation of consortium of cluster level bidders

* Responsibility among consortium members  for non-performance of the plans

What are the options: 
 

Under Option one,  potential investors can bid for Reliance at the consolidated level, while in option two, the investors can bid for one or more individual subsidiaries

The lenders and the administrator are also sparring over who is responsible for non-performance of resolution plans and whether it is the joint liability of all consortium partners who are forced by CoC to form a consortium. The administrator is planning to seek additional three months’ time from the court to complete the sale of assets.

On November 29 last year, the Reserve Bank of India had initiated the bankruptcy process of Reliance Capital under the Insolvency and Bankruptcy Code, 2016 (IBC) after the company defaulted on its loans.

On December 6 last year, the National Company Law Tribunal admitted the RBI’s petition and initiated the debt resolution process and appointed Nageswar Rao Y as Administrator of Reliance Capital.

Tata AIG, ICICI Lombard and Nippon Life are among 50 companies that have submitted EoIs for the profit-making insurance arm of Reliance Capital (RCap), joining several prominent financial companies from India and abroad in the race for Reliance Capital’s assets.

HDFC Ergo, Bandhan Financial Holdings, Cholamandalam Investment and Finance Company, Adani Capital (Finserv), YES Bank, Jindal Power, OakTree Capital Management, Blackstone, NewQuest Capital Partners, IndusInd International Holdings, Brookfield Asset Management, TPG, Zurich Insurance Group, Ares SSG Capital, ArpWood Partners, Capri Global Holdings, Edelweiss Alternative  Asset Advisors, International Asset Reconstruction Company, JC Flowers & Co, Motilal Oswal Financial Services, Square Four Housing, UV Multiple Assets Investment are among the companies which have submitted their EoIs.

Banking sources said it would be interesting to see how many companies submit financial bids for Reliance Capital companies.