In a letter to the administrator of Reliance Capital (RCap), IRDAI said it cannot undertake due diligence regarding acquisition of the distressed financial services company’s insurance business by Hinduja-owned IndusInd International Holdings Limited (IIHL), unless it is provided with detailed information about the acquirer’s ultimate primary shareholder, its source of funds, and capital structure.
Dated March 20, the letter by the Insurance Regulatory and Development Authority of India (IRDAI) was in response to a request by administrator Nageswara Rao Y to approve the transfer of RCap’s shares in three insurance companies to Aasia Enterprises LLP, another Hinduja group company.
In February, the National Company Law Tribunal (NCLT) had approved a ₹9,661-crore resolution plan by IIHL, Aasia Enterprises LLP and IIHL BFSI (India) Ltd for the previously Anil Ambani-owned RCap.
However, the acquisition can proceed only after approval is received from banking and insurance regulators.
According to a structure proposed by Hinduja group, 30% of the acquisition will be funded by equity infusion from Aasia Enterprises, while it would raise debt for the remaining 70% of the consideration, said people with knowledge of the matter.
IRDAI, in its letter, stated that the application does not indicate the consideration that Aasia Enterprises would be paying to acquire the equity, sources of funds, and details of the recipient of the said consideration.
The insurance regulator asked the RCap administrator to furnish the structure of borrowing and instrument details as well as provide clarity on how Aasia Enterprises will be able to meet future capital requirements of insurance companies.
It also raised concern over a proposed borrowing and a plan to pledge part of shares of Aasia Enterprises, RCap and IIHL (BFSI), indicating that borrowing and pledging of shares to acquire stake in the insurance business violated guidelines. Earlier, IIHL had informed the insurance regulator that this is an indicative transaction structure.
IRDAI, in its letter, sought a definitive structure, details of entities involved, their country of incorporation, shareholding pattern and capital structure. It also sought information on the shareholding of the holding company and special purpose vehicle involved in this transaction.
Following the insurance regulator’s approval, RCap’s 100% stake in Reliance General Insurance and Health Insurance and 51% stake in Reliance Nippon Life Insurance will be transferred to a Hinduja-linked entity.
On December 27, 2023, the Competition Commission of India had approved acquisition of the equity stake in RCap by IIHL, IIHL BFSI (India) Ltd and Aasia Enterprises.
It had also noted that IIHL is incorporated in Mauritius and regulated by that country’s Financial Services Commission.
In mid-March, the Mumbai bench of the NCLT directed IIHL to implement the resolution plan by May 27 this year.
Source: Economic Times