Reliance General Insurance seeks Rs 600 crore from bankrupt parent

Profit-making subsidiary's request complicates matters for Reliance Capital's lenders that have to decide matter Friday

Reliance General Insurance, a profit-making subsidiary of bankrupt Reliance Capital, has sought Rs 600 crore as capital infusion from its parent before December’s end to deal with solvency margin requirements.

Reliance Capital’s lenders have to decide the matter on Friday: a task made difficult as it undergoes the bankruptcy process that saw bidders showing interest in the insurance arms of the company. Bidders will have to recalculate their offers made in the binding bids for the additional Rs 600 crore requirement of the general insurance arm.

In a letter to Reliance Capital’s bankruptcy administrator, the insurance firm said the fund infusion is essential to preserve the business, enhance the value and take the company's solvency from 155 per cent to about 175 percent of the required margin requirements.

Reliance General Insurance, in the letter dated December 1, said its borderline solvency is creating hesitation among its corporate clients, winning government business tenders, and forming retail and bank partnerships. The company said its borderline solvency is being capitalised on by its competitors. The letter has been reviewed by this paper.

The company said the additional capital infusion from the existing stakeholders of the company will send a strong message of support to the market. It earned 11 per cent higher gross direct premium of Rs 6,478 crore  between January and October this year, compared to Rs 5,813 crore in the same period of 2021. It had a market share of 5.3 per cent in the industry in the new premium segment.

The additional capital will augment value creation and negate the risk of underperforming the broader markets. The company believes that fresh fund infusion will assure the insurance regulator and reflect continued support by the promoter company.

The company has told the administrator that as a large format insurer it can gain significantly and pursue growth, but that would require adequate capital support from Reliance Capital.

Among the four bidders for the company as a whole, the highest offer was submitted by Piramal-Cosmea Financial at Rs 5,231 crore. The Hinduja group offered Rs 5,060 crore. Ahmedabad-based Torrent Investments offered Rs 4,500 crore and Oaktree Capital offered Rs 4,200 crore.

But Duff and Phelps estimated Reliance Capital's valuation at Rs 12,500 crore, while another valuer RBSA Advisors pegged the company liquidation value at Rs 13,200 crore. These reports were submitted to the Committee of Creditors last week after the bidders submitted their offers. Lenders are expected to negotiate with the bidders and take a decision to initiate an e-auction on Friday, said another source.

In slow lane 

• RCap's 100% stake in Reliance General Insurance is on sale; 51% in life insurance
• No separate bids received for profit making general/life insurance arms
• Piramal keen to acquire general insurance arm
• 90% of independent valuation of RCap assets of Rs 14,500 cr comprise two insurance companies