The Reserve Bank of India (RBI) on Monday superseded the board of industrialist Anil Ambani-promoted Reliance Capital, a non-banking financial company (NBFC), owing to defaults and governance issues.
It said the company would go for insolvency proceedings shortly.
The data with Bloomberg showed as of date, Reliance Capital had defaulted on Rs 8,3138.8 crore. The company had said in its December-quarter earnings last year that it had listed non-convertible debentures (NCD) of Rs 14,827 crore.
Reliance Capital’s bonds run until at least 2028 and have a weighted average maturity of 3.36 years, and a weighted average fixed coupon of 9.37 per cent. The debt of Reliance Capital stands at Rs 27,100 crore. On a standalone basis, the networth was a negative Rs 8,195 crore, and on a consolidated basis a negative Rs 13,700 crore.
Reliance Capital reported a consolidated net loss of Rs 2,162 crore in the first half of the financial year (ended September 30).
“In view of the defaults by RCL (Reliance Capital Ltd) in meeting the various payment obligations to its creditors and serious governance concerns which the board has not been able to address effectively”, the central bank superseded the board.
The RBI has appointed Nageswar Rao Y, former executive director of Bank of Maharashtra, administrator of Reliance Capital.
The central bank said it would “shortly initiate the process of resolution of the company under the Insolvency and Bankruptcy … Rules, 2019”. The central bank will also apply to the National Company Law Tribunal (NCLT), Mumbai, for appointing the administrator insolvency resolution professional.
This is the third time in recent years that the central bank has superseded boards of what once were considered systemically important NBFCs. The central bank superseded the board of DHFL in November 2019, and then two NBFCs of SREI Group in October this year.
The central bank is bringing in a much stricter set of regulations for NBFCs, making the rules for them on a par with those for banks.
The action on Reliance Capital, though, may not have any significant impact on the sector because the group to which it belongs has been in trouble for long, and had repeatedly failed in repaying its debt to lenders or bondholders, the latest being on November 27.
It has a default rating, or “D”.
Reliance Capital had ambitions in banking, but the central bank has stayed away from giving licences to large corporate houses. Reliance Capital has defaulted on term loan payments multiple times and the account is classified as a non-performing asset (NPA) with banks.
Various arms of the group have been either partly sold or in the possession of creditors. The company has been scouting for joint venture partners for its subsidiaries with mixed results.
Anil Ambani, who was once among the world’s top 10 richest, declared bankruptcy in the UK in 2020. The group started defaulting, including in its dollar bonds, from at least 2017.
“This shouldn’t have much of an impact on NBFCs. The company’s issues were known in the market and the actions on it are on expected lines,” said Prakash Agarwal, director and head (financial institutions), India Ratings & Research.
Investors in Reliance Capital bonds also do not expect any major reaction in the funding market for NBFCs.
“There will be no negative impact for NBFCs’ debt raising. Investors had written off the debt anyway. The RBI superseding the board ends the uncertainty for many, but, yes, expect heavy haircuts or even a complete write-down of debt like in the case of YES Bank,” said the head of treasury of a foreign bank.
The group has repeatedly cited ongoing litigation for its inability to sell assets and pay back loans.
“… Delay in debt servicing is due to prohibition on the company from making any payment to secured or unsecured creditors and to dispose of, alienate, encumber either directly or indirectly or otherwise part with the possession, of any assets except in the ordinary course of business such as payment of salary and statutory dues,” due to various court orders, the company had said in its notification with the exchanges.
The company had said it was in the process of meeting its obligations by way of time-bound monetisation of its assets
The debenture holders of the company had in October 2020 sought expression of interest for submission of asset monetization plans for certain subsidiaries and investments of the company. But the expression of interest had to be extended twice, latest on April 30 this year.
Its subsidiary Reliance Home Finance is engaged with all its lenders for arriving at a debt resolution plan. The creditors selected Authum Investment & Infrastructure as the final bidder on June 19, 2021.
Reliance Commercial Finance is also engaged with its lenders for arriving at the debt resolution plan. Here too, Authum was selected.
Reliance Capital had pledged its entire equity holding in Reliance General Insurance Company Limited (RGICL) in favour of IDBI Trusteeship Services Limited (Trustee) against dues guaranteed by the parent company. The Trustee, on November 19, 2019, invoked the pledged and presently holds the shares or RGICL in their custody.
Various arms of the group have been put up on sale by lenders. The advisors to the lenders -- SBI Caps and JM Financial – had received over 90 expressions of interest for nine key assets of the company but no transaction could be completed due to ongoing litigation in debt recovery tribunals and other courts.
(Abhijit Lele and Dev Chatterjee contributed to this story)