Recent reports suggest that the Insurance Regulatory and Development Authority of India (IRDAI) has voiced reservations regarding the resolution plan put forward by IndusInd International Holdings (IIHL), a firm under the Hinduja Group, for debt-laden Reliance Capital, a player in the insurance sector, encompassing non-life segments.
Sources indicate that IRDAI has directly addressed Nageshwara Rao Y, the administrator of Reliance Capital, expressing dissatisfaction with IIHL’s proposal, deeming it inconsistent with established insurance regulations.
The regulator has reportedly requested clarification on IIHL’s commitment to injecting equity capital into the beleaguered Reliance Capital. Additionally, IRDAI has voiced concerns about IIHL’s intention to rely on debt financing to facilitate the acquisition, citing potential regulatory implications.
Also read: Reliance Capital shares are set to be delisted from stock exchanges
IRDAI’s stance underscores its belief that promoters should primarily utilize their own capital, particularly given the fiduciary responsibility of insurance companies to safeguard policyholders’ interests.
Furthermore, IRDAI has sought detailed explanations regarding IIHL’s borrowing framework, encompassing aspects such as interest rates, instrument issuance, and prospective subscribers. Additionally, the regulator has sought insights into the proposed structure for the acquisition of Reliance Capital’s insurance subsidiaries, along with IIHL’s capacity to meet future capital requirements within the insurance sector.
The regulator also expressed apprehension regarding the potential increase in foreign direct investment (FDI) levels resulting from the transfer of Reliance Capital’s stake to IIHL. The communication stated, ‘In other words, RCL (Reliance Capital Ltd) will have 100% FDI. Please confirm if the same is permissible as per extant FDI law. Please provide reference to the said law that permits the same.’
On February 27, 2024, the National Company Law Tribunal approved the resolution plan worth Rs 9,650 crore proposed by Hinduja Group’s firm, IndusInd International Holdings Ltd, for Reliance Capital. This decision came after the Reserve Bank of India had intervened in November 2021, superseding Reliance Capital’s board due to governance issues and payment defaults by the Anil Dhirubhai Ambani Group company.
Nageswara Rao Y was appointed as the administrator by the central bank, who initiated the bidding process in February 2022 to facilitate the company’s takeover. Despite initial bids from four applicants, all plans were rejected by the committee of creditors due to lower bid values. Subsequently, IIHL and Torrent Investments participated in a challenge mechanism.
In June 2023, the Hinduja Group’s firm secured the committee’s approval with its bid of Rs 9,661 crore in upfront cash. Additionally, Reliance Capital’s cash balance of an extra Rs 500 crore was earmarked for the lenders.
Sources: moneycontrol.com