Hinduja Group’s IndusInd International Holdings Limited (IIHL) has received the insurance regulator’s nod to takeover Reliance Capital under the insolvency and bankruptcy process.
IIHL received the Insurance Regulatory and Development Authority of India (IRDAI) nod late on Friday evening (May 10), which was crucial for its acquisition of Reliance Capital’s insurance arms, including Reliance General Insurance Company, Reliance Nippon Life Insurance Company, and Reliance Health Insurance.
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CNBC-TV18 was the first to report the development, which was later confirmed by IIHL in a media statement.
“We are happy to acknowledge the receipt of approval from IRDAI yesterday (10th May 2024) on the auspicious occasion of Akshay Tritiya. The approval is subject to certain ‘regulatory, statutory, and judicial’ clearances/compliances. IndusInd International Holdings Limited stands committed to working towards obtaining the same as soon as possible and aims to close this transaction by the NCLT’s stipulated date of the 27th of May 2024,” an IIHL spokesperson said in the statement on the development.
The approval from the Insurance Regulator-IRDAI also comes with certain conditions which were a part of the regulators communication to the company on May 10, CNBC-TV18 has learnt.
IRDAI has allowed transfer of about 5 crore shares of Reliance General Insurance, Reliance Nippon Life Insurance and Reliance Health Insurance from Reliance Capital to Aasia Enterprises (Hinduja owned entity) on the condition that Hindujas remain the promoter for at least 3 years, a person directly aware of the matter told CNBC-TV18 on the condition of anonymity.
IRDAI has also told Hindujas to remain compliant with regulatory obligations like registration, transfer of shares and amalgamation and capital structure of insurance companies, the person quoted earlier added.
Finally, IRDAI has also communicated that any transfer of shares now or in future should not violate the Foreign Direct Investment regulations of the country. The limit for Foreign Direct Investment (FDI) in Indian insurance companies stands at 74%. IRDAI, it is understood, has also asked Hindujas to ensure that shares of the three insurance entities cannot be pledged or encumbered in any other what from what IRDAI permits.
“To ensure compliance with FDI norms on holding in Indian insurance companies, the deal will be structured in a way that 74 percent stake will be held by IIHL and 26 percent by Aasia Enterprises,” said a person in the know. Aasia Enterprises in a Hinduja Group company which is held by Hinduja family members, Ashok Hinduja, Shom Hinduja and Harsha Hinduja.
The deal has already received approvals from Reserve Bank of India, SEBI, Competition Commission of India and the NCLT, it is understood. “A PIL has been filed against the IIHL takeover of Reliance Capital in the Supreme Court, which remains pending,” a person in the know told CNBC-TV18.
The IDRAI approval has come in just weeks before the National Company Law Tribunal’s May 27 deadline for executing the deal.
However, since Hindujas have tweaked the structure of the deal to ensure compliance with Indian regulations on foreign investment, such that the transaction takes places via IIHL and other Hinduja Group companies, they will be required to take final approvals on the structure from RBI, SEBI and CCI again, and the deal cannot be closed until the regulators green flag the changes, CNBC-TV18 has learnt. A source close to Hindujas said these are minor structural changes to ensure compliance and are expected to be cleared by the regulators soon.
Hindujas will fund the deal through a mix of debt and equity, a person directly aware of the matter told CNBC-TV18. While the large portion of the Rs 9650 crores would be raised from banks, AIFs, and Mutual Funds, about 25 percent will be in the form of equity infusion from the Hinduja group, said a person aware of the matter. IIHl has proposed to repay Reliance Capital lenders in upfront cash, as per the agreed terms for the takeover, it is understood.
Lenders had approved IIHL’s Rs 9650 crores takeover bid for Reliance Capital under the IBC with 99.6% majority in June 2023. The National Company Law Tribunal subsequently approved the resolution plan in February 2024.
While the bid amount was Rs 9650 crores, the total amount payable by IIHL to lenders would be closer to Rs 9861 crores, including additional Rs 200 crores for the general insurance arm and Rs 11 crores as per an avoidable transaction clause under IBC, a person aware of the matter told CNBC-TV18.
Reliance Capital is currently facing claims totalling Rs 25,334 crore from secured and unsecured financial creditors under the IBC. The Reserve Bank of India had superseded the board of Reliance Capital in November 022, citing governance concerns and sent the company to bankruptcy courts for resolution. Reliance Capital is a core investment company with 20 units in its fold, including insurance, broking and asset reconstruction.
