Anil Ambani-promoted Reliance Capital’s winning bidder Hinduja Group received central bank approval to acquire the financial services company, but the transaction cannot proceed until it is approved by the DPIIT (Department for Promotion of Industry and Internal Trade).
The Hindujas need DPIIT approval because IIHL (IndusInd International Holdings Ltd), the acquisition vehicle, has 600 shareholders from the UAE, Singapore, Hong Kong, and Mauritius, with 39 shareholders residing in Hong Kong, which is classified as a land-border country under PN3 due to its special administrative relationship with China, said a source.
This has raised compliance questions under PN3, prompting deeper scrutiny by Indian regulators.
The approval is critical for Hinduja group, which is working round the clock to close the transaction by Nov 30 (the long stop date for the deal), failing which it will have to return the Rs 3,000 crore raised from high-net-worth individuals (HNIs), ultra-HNIs, and family offices including ABCL, Tata Capital, 360 One, for the acquisition of RCap
A Hinduja spokesperson did not respond to requests for comment.
The creditors had approved a bid by Hinduja Group in July 2023, following the Reserve Bank of India’s intervention in November 2021 due to governance and debt default issues amounting to Rs 40,000 crore. The Hinduja group has structured the Rs 9,650 crore acquisition using both equity and debt financing.
“The Hinduja Group has received RBI’s approval, but the acquisition now hinges on clearances from the court and DPIIT, especially when equity infusion is coming from an overseas entity of the group,” said one investor involved in the transaction.
To meet its funding needs, the Hinduja Group plans to raise Rs 7,300 crore via debt. Last month, IIHL, through its subsidiary Cyqure India, raised Rs 3,000 crore by issuing Non-Convertible Debentures (NCDs) with a 14.50% coupon rate. These NCDs, maturing in 2028 with a 42-month tenor, are zero-coupon, senior secured, listed, rated, and redeemable, aimed specifically at financing the acquisition.
The remaining Rs 4,300 crore, expected to be raised through NCDs led by Barclays, is also contingent on final regulatory approvals, the sources said. The Cyqure-issued NCDs, structured as senior secured instruments, are under pressure with the looming November 30 deadline for the Hinduja group to expedite the necessary approvals, said two bond investors.
The RBI has approved the transfer of Reliance Capital’s control to IIHL BFSI India Ltd. and cleared the appointments of key directors. The approved directors for Reliance Capital following the transfer to IIHL BFSI India Ltd. are Amar Chintopanth, Sharadchandra Zaregaonkar, Moses Harding, Bhumika Batra, and Arun Tiwari.
However, the RBI has placed conditions on the change, including that any issuance of non-convertible debentures (NCDs) to non-residents must follow external commercial borrowing (ECB) guidelines, and Reliance Capital’s current creditors cannot fund these NCDs. Future changes in shareholding will need RBI’s approval, and the new owners will have to work to strengthen Reliance Capital’s financial position.
The RBI’s approval is subject to compliance with FEMA and any foreign exchange regulations, and does not override any court or regulatory decisions that may affect the acquisition. Reliance Capital must maintain an arm’s-length relationship with IndusInd Bank after the transfer. The approval remains valid as long as it aligns with the timeline specified in the NCLT order from July 23, 2024.
