RCap seeks revised plan from IIHL after IRDAI objects to pledging insurers’ shares

IRDAI has objected to the Hinduja Group creating a pledge on the shares of the insurance subsidiaries of Reliance Capital (RCap) in order to raise funds for the resolution proceeding.

The CoC (committee of creditors) of RCap met IRDAI on October 9 for permission to create such a pledge. However, the regulator said that “no application for change in control would be considered favourably if the source of funds for the acquisition contemplates creation of pledge over the shares of an insurance company”, as per sources.

Subsequently, in a letter to the Hinduja Group, Reliance Capital’s administrator has asked IndusInd International Holdings (IIHL) to revise and share the final executed change in control applications, along with the source of funds and a business plan which do not include creation of pledge over the shares of the insurance companies.

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The Hinduja Group, which is set to acquire Reliance Capital, had proposed and sought approval for change in control of the ownership, and creation of pledge over the shares of Reliance General Insurance and Reliance Nippon Life Insurance, to raise funds from the investors.

The move was supported by the lenders of RCap, who believed the regulatory nod to be “material for completion of the successful resolution of Reliance Capital”, as per the letter accessed by businessline.

Fund-raise plan

Hinduja Group is said to be raising $850 million from leading foreign funds and banks such as JP Morgan, Barclays Bank, Brookfield, Cerberus Capital, Apollo - USA, and Oaktree Capital.

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The funding is being raised against RCap’s assets which includes the most valuable insurance subsidiaries, estimated to account for a bulk of the parent company’s valuation.

Meanwhile, the second bidder for the resolution, Torrent Investments has appealed before the Supreme Court to stay RCap’s resolution proceedings till the pending matter of the validity of the extended challenge mechanism is resolved. The Hinduja Group was the sole bidder in the second challenge mechanism, which was approved by the CoC in June 2023.