The clearance by the Insurance Regulatory and Development Authority (IRDA) to the transfer of shares in Reliance Capital’s insurance arms to the Hinduja Group is a significant step towards the resolution of the Reliance Capital issue, legal experts said. IRDA, which earlier had expressed some reservations over the proposed structure for RCap’s insurance subsidiaries, gave the approval for a stake sale in Reliance General Insurance Company Limited, Reliance Health Insurance Limited, and Reliance Nippon Life Insurance Limited to the Hinduja Group’s Aasia Enterprises.
According to Abdullah Qureshi, Associate Partner, IndiaLaw LLP, the approval marks a significant step forward. “As per the resolution plan terms, IndusInd International Holdings Limited (IIHL) was required to seek approvals from several regulatory authorities. One of the crucial conditions was to obtain IRDA approval for the change in control of several insurance businesses. IRDA provided the approval and with this approval, a major regulatory hurdle has been overcome, significantly advancing the sale of Reliance Capital's insurance businesses to IIHL and bringing it closer to completion,” said Qureshi.
Similarly, Prashanth Shivadass, Partner, Shivadass & Shivadass Law Chambers, said the Hinduja Group would still need the Reserve Bank of India’s (RBI) approval for this transaction to complete. “There are also certain payments that will need to be made by the Hinduja group in compliance with IRDA’s approval,” Shivadass said.
IRDA clearance
IRDA on May 10 cleared the transfer stake in Reliance Capital's insurance arms. As per the clearance, Hinduja’s have to complete the share purchase in RNLIC within a period of three months from the date of approval. Post the transaction, Reliance Capital, Nippon Life Insurance and Aasia Enterprises LLP will remain the promoters of the company, as per IRDAI conditions. Post the completion of the share transfer, the insurance company needs to submit the details of the share transfer to the IRDA.
Earlier, IRDA had expressed some reservations over the proposed structure for Reliance Capital’s insurance subsidiaries. IRDA in a communication to the administrator of Reliance Capital, Nageshwara Rao Y, has sought the proposed structure for the acquisition of Reliance Capital’s insurance subsidiaries. The regulator is of the opinion that promoters should invest their own capital as insurance companies deal with the money of policyholders and as a regulator, protection of policyholders is the top priority.
Deferred auctions, insolvency process
In February 2022, 55 companies submitted expressions of interest for Reliance Capital, and 14 submitted non-binding bids by August 2022. By December 2022, only four investors – the Hindujas, Torrent Investments, the Cosmea-Piramal consortium, and Singapore’s Oaktree Capital, put in final bids.
Since the bids were below liquidation value, the committee of creditors (CoC) held an e-auction for revised bid prices, at which the Hinduja Group, Oaktree and Torrent Investments emerged as the top bidders.
The lenders had estimated the liquidation value of the company at about Rs 12,500 crore. Since the bid by IIHL is the sole one for Reliance Capital, the lenders will have to consider it.
In the second auction held on April 26, 2023, IIHL emerged as the sole and highest bidder, exceeding the Rs 8,640 crore offer by Torrent Investments in the first round of the auction held in December. Torrent and Oaktree did not participate in the second round.
The second auction was deferred several times due to concerns raised by the lenders. Originally scheduled for April 4, the auction was postponed to April 11 after the bidders asked for changes in the request for resolution plan.
The minimum bid amount for the second auction was set at Rs 9,500 crore, based on net present value calculations, with a cash share of at least Rs 8,000 crore. As per the auction process, after the first round, the bid amount would increase by Rs 500 crore, and then by Rs 250 crore in subsequent rounds.
However, on April 11, the CoC deferred the auction to April 26.
Insolvency proceedings
All of this happened after the Reserve Bank of India (RBI) superseded the board of Reliance Capital on November 29, 2021, after payment defaults and governance issues, and appointed Nageswara Rao Y as the administrator in relation to the Corporate Insolvency Resolution Process (CIRP) of the company.
Among the 29 banks that lent money to Reliance Capital were YES Bank with Rs 3,340 crore, Bank of Baroda with Rs 2,290 crore, and IndusInd Bank. According to Morgan Stanley, Reliance Capital owes creditors Rs 52,490 crore, of which Rs 21,070 crore is to the banks alone.
Reliance Capital is the third large non-banking finance company against which the RBI has initiated bankruptcy proceedings under the Insolvency and Bankruptcy Code – after Dewan Housing Finance Corporation and Srei Group NBFC. The central bank subsequently filed an application for initiation of CIRP against the company at the Mumbai bench of the NCLT.
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