This is the first instance of an insurance company entering into ICAs for debt resolution.
State-owned general insurer New India Assurance said on October 3 that the company has entered into inter-creditor agreements (ICAs) for debt exposure to debt instruments of Reliance Home Finance and Dewan Housing Finance.
This is the first such instance of an insurance company entering into ICAs for debt resolution. The insurer did not specify the quantum of their exposure to the debt securities.
The Insurance Regulatory and Development Authority (IRDAI) has allowed insurers to be part of ICA so that they are part of the debt resolution process of an ailing firm.
New India informed to exchanges that they had signed the deed of accession for entering into the ICA.
In a circular dated June 7, Reserve Bank of India (RBI) had said that if a borrower is defaulting to any lender, then all lenders to the company would put in place a resolution plan (RP) within 30 days of the default.
During this 30-day review period, the lenders would decide on a resolution strategy (sale of loan, legal action for debt recovery, immediate referral to NCLT etc) which could include restructuring and change in ownership.
In case an RP is implemented, the lenders would sign the ICA during the review period. An agreement signed by lenders representing 75 percent by value of outstanding or 60 percent of lenders by number would be binding on all lenders. The aim of having an ICA is to achieve resolution in a time-bound manner.
Reliance Home Finance
On September 12, CARE Ratings (CARE) downgraded the rating for Reliance Home Finance's long-term debt programme, market linked debentures, subordinated debt, non-convertible debentures (NCDs) and upper Tier-11 NCDs to D. CARE stated that the action is primarily due to delay in servicing the principal of one of the NCDs of the company. The downgraded debt is worth Rs 4,979 crore.
Reliance Home Finance subsequently informed the exchanges that the company has been directed by the lenders to keep servicing only the interest obligation. Debt servicing towards principal repayment irrespective of type of facility is to be made on parity.
Dewan Housing FinanceThe housing finance company has a total debt of around Rs 1 lakh crore and has proposed to convert debt to equity while seeking to sell assets and raise capital. The company has defaulted on its obligations several times. The company is weighing several options including selling stake in group entities.Are you happy with your current monthly income? Do you know you can double it without working extra hours or asking for a raise? Rahul Shah, one of the India's leading expert on wealth building, has created a strategy which makes it possible... in just a short few years. You can know his secrets in his FREE video series airing between 12th to 17th December. You can reserve your free seat here.