Administrator seeks RBI nod to restructure Reliance Capital into four CICs

Will help bidders for its insurance business to avoid Irdai's 5-year lock-in

In a bid to get better offers from private equity (PE) firms, the Reliance Capital (RCap) administrator has proposed to restructure the diversified financial services holding company — now undergoing bankruptcy — into four separate core investment companies (CICs).

The administrator has written to the Reserve Bank of India (RBI) seeking its approval on Tuesday after the National Company Law Tribunal (NCLT) agreed to extend the completion of the bankruptcy process to January next year.

In line with the proposal, the four new CICs are Reliance General Insurance Company, Reliance Nippon Life Insurance Company, all the other businesses of RCap, including Reliance Securities, asset reconstruction company, PE, real estate assets and finally, Reliance Commercial Finance and Reliance Home Finance. 

The new structure will help the bidders of RCap’s insurance businesses to avoid the Insurance Regulatory and Development Authority of India’s (Irdai’s) guidelines on the five-year lock-in for new investors. Under Irdai guidelines, the equity contributions of promoters and other investors, including PE funds, must have a lock-in period of five years at the time of granting final approval.

The removal of the five-year lock-in will help PE bidders like Advent International (Advent) exit the insurance venture any time. Advent had made the highest non-binding bid of Rs 7,000 crore for the general insurance venture.

There are four companies gunning for RCap’s insurance ventures. Piramal Group has tied up with Zurich Insurance to make a bid for the general insurance company, apart from Advent. Aditya Birla Capital is planning to bid for 51 per cent stake in Reliance Nippon Life Insurance Company.

At the same time, Nippon Life of Japan, which owns 49 per cent stake in the life insurance company, wants to bid for the rest of the stake in association with a local company.

According to the RBI, a core investment company is a non-banking financial company (NBFC) that carries on the business of acquisition of shares and securities and holds no less than 90 per cent of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies.  On Tuesday, the RCap administrator also wrote to the RBI informing the regulator about the 90-day extension granted by the NCLT’s Mumbai Bench to complete the resolution process by January next year.

In August, the committee of creditors had received six bids for RCap as an entire company. The bidders included Torrent Group, IndusInd International, Oaktree, Cosmea Financial Holdings, Authum Investment & Infrastructure, and B-Right RealEstate. The companies submitted indicative bids of Rs 4,000-4,500 crore for RCap. The offers were subject to completion of due diligence.

For the profit-making Reliance General Insurance business, Piramal Group had bid Rs 4,000 crore, while Zurich Insurance’s offer was Rs 3,500 crore. Piramal and Zurich are in talks to jointly bid for the general insurance company. These bidders have sought time until early next year to make a binding bid, citing delay in due diligence, but were asked to make binding bids by end-October.

RCap was sent for debt resolution in December last year after it defaulted on bank loans. Lenders hope they will be able to resolve the combined debt of Rs 50,333 crore owed by the company and its subsidiaries by the end of 2022-23.

A separate debt resolution process for the NBFC arm and the home finance company is currently on. Authum has emerged the highest bidder for the NBFC and housing finance companies.

Reliance Capital’s new structure

. Two insurance arms to de-merged into separate CICs

. All other businesses to be housed in a CIC

. NBFC, home finance arms to be housed in a separate CIC

. RBI nod needed to classify Reliance Capital into 4 CICs