Acquisition of RCap: Hinduja-led IIHL in a fix after setback from Irdai

IIHL had sought approval from insurance regulator for the change in control of the ownership of RGIC and RNLIC and creation of pledge over their shares to raise funds from the investors, source said

The RBI-appointed Administrator of debt-ridden Reliance Capital (RCAP) has written to Hinduja Group firm IndusInd International Holdings Ltd (IIHL), the successful bidder for acquiring RCAP, raising questions on the source of funds and business plan, sources said.

The letter went from the Administrator after Insurance Regulatory and Development Authority of India (Irdai) rejected IIHL's proposal to raise funds for the RCAP acquisition by creating a pledge over the shares of Reliance General Insurance (RGIC) and Reliance Nippon Life Insurance (RNLIC), sources said.

RGIC and RNLIC are subsidiaries of the debt-ridden financial services firm. In a letter to IIHL, sources said, the Administrator has asked the successful resolution bidder IIHL to submit a fresh application along with the source of funds and the business plan which do not contemplate the creation of pledge over the shares of RGIC and RNLIC.

The Administrator has written to IIHL that in their meeting with Irdai on October 9, Irdai indicated that no application for change in control would be considered favourably if the source of the funds for the acquisition contemplates creation of pledge over the shares of an insurance company.

The Administrator has further asked IIHL that the company should submit a fresh application for change in control of the insurance companies (RGIC and RNLIC), along with the source of funds and the business plan which do not contemplate the creation of pledge over the shares of the RCAP insurance companies, sources said.

Hinduja Group is raising a debt of $ 850 million from the leading foreign funds and banks to fund the acquisition of RCAP. The Group propose to raise this fund against the assets of RCAP, which primarily includes the company's 100 per cent stake in RGIC and 51 per cent stake in RNLIC, sources said, adding, these two assets constitute more than 90 per cent of the value of the debt-ridden firm.

IIHL had sought an approval from the insurance regulator for the change in control of the ownership of RGIC and RNLIC and creation of pledge over their shares to raise funds from the investors, sources said.

However, this was turned down by the regulator. The Irdai approval is necessary for the completion of the successful resolution of Reliance Capital.

IIHL is in talks with some foreign banks for its $ 850 million fund raise.

The Reserve Bank of India (RBI) on November 29, 2021, superseded the board of Reliance Capital in view of payment defaults and serious governance issues.

The RBI appointed Nageswara Rao Y as the Administrator in relation to the Corporate Insolvency Resolution Process (CIRP) of the firm. Reliance Capital is the third large non-banking financial company (NBFC) against which the central bank has initiated bankruptcy proceedings under IBC.

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