IRDAI seeks more details from IIHL to approve deal for
Reliance Capital's insurance business
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.
www.economictimes.indiatimes.com dt. 28.03.2024