NEW DELHI: The resolution of Reliance Capital insolvency case could hit a roadblock after the insurance regulator – Insurance Regulatory and Development Authority of India (IRDAI) – rejected Hinduja Group-led IIHL’s proposal to raise funds by pledging shares of Reliance General Insurance and Reliance Nippon Life Insurance.
IIHL, which emerged as the successful resolution applicant, wanted to raise this fund to acquire Reliance Capital.
Sources told TNIE that after the IRDAI rejection, Reliance Capital administrator has asked IIHL to submit a fresh application, along with the source of funds and the business plan which does not include the creation of pledge over the shares of the two insurance arms of the company.
IRDAI has 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.
Sources said that Hinduja Group had proposed to raise a debt of $850 million from the leading foreign funds and banks to fund the acquisition of Reliance Capital Ltd.
Hinduja Group had proposed to raise this debt against the assets of Reliance Capital, which primarily includes Reliance Capital’s 100% stake in Reliance General Insurance and 51% stake in Reliance Nippon Life Insurance.
These two assets constitute more than 90% of the value of Reliance Capital. IIHL had sought an approval from the Insurance Regulator for the change in control of the ownership of RGIC & RNLIC and creation of pledge over their shares to raise funds from the investors.
IRDAI’s approval is necessary for the completion of the successful resolution of Reliance Capital.
According to sources, IIHL was in talks with a clutch of US-based banks -- JP Morgan, Barclays Bank, Brookfield, Cerberus Capital, Apollo – as also Singapore’s Oaktree for its $850 million fund raise.
Lenders of Reliance Capital had voted in favour of the resolution plan submitted by IIHL with a 99.6% vote share.
As per IIHL’s resolution plan, the lenders will receive an upfront cash of R9,661 crore from Hinduja group-backed successful resolution applicant.
Torrent Investment, which was also in the race to acquire the erstwhile Anil Ambani-led company, lost the bid to IIHL, after it stayed out of the second round of the auction.
In the first round of auction, Torrent Investments had offered to pay R8,640 crore, while IIHL had put a bid of R 8,110 crore. But both the amounts were far below the liquidation value (R13,000 crore) of Reliance Capital.
Resolution plan
As per IIHL’s resolution plan, the lenders will receive an upfront cash of R9,661 crore from Hinduja group-backed successful resolution applicant. Torrent Investment, which was also in the race to acquire the company, lost the bid to IIHL, after it stayed out of the second round of the auction.