RCap lenders in a fix as Hindujas retract revised Rs 8,950-crore offer

The revised Hinduja stand has put Indian lenders, with an exposure of Rs 24,000 crore, in a spot as it was the Hindujas offer which led to a call for second auction and litigation by the other bidder

The Hinduja group is learnt to have backtracked from making a minimum Rs 8,950-crore offer for Reliance Capital (RCap) – a deal that it had belatedly put forth in December, after Torrent Investments emerged as the highest bidder for the bankrupt firm in the challenge process.

The Hindujas’ latest move has put Indian lenders, with an exposure of Rs 24,000 crore, in a spot as it was the former’s revised offer that led to a call for a second auction and litigation by Torrent, which had placed a bid of Rs 8,649 crore in the first auction. Torrent has moved the Supreme Court and plans to wait for the apex court verdict before participating in any fresh auction.

A banking source said there was an informal meeting of a few lenders of Reliance Capital with the bidders – the Torrent group and the Hinduja group on Friday when the latter changed its stand. The meeting of RCap’s committee of creditors (CoC) is scheduled for Monday.

“During the meeting (on Friday), the Hinduja group backtracked from its stand and informed that its bid in the previous round should be considered as Rs 8,110 crore (made during the challenge process), instead of its revised offer of Rs 8,950 crore. The Hindujas had submitted the offer after Torrent was declared as the highest bidder in the Challenge Mechanism," said a person close to the development.

“With this, the lenders are faced with the possibility of significant losses in interest cost due to the delay on account of the toppling bid,” the source said.

Neither the Hinduja group nor Torrent commented.

The valuation of the company fell after the Union Budget removed tax exemption on insurance policies with a premium over Rs 5 lakh. The valuation of all life insurance companies are down since the Budget presentation. Reliance Capital owns a 51 per cent stake in Reliance Nippon Life Insurance and a 100 per cent stake in Reliance General Insurance.

The Supreme Court has issued notices to all parties in the appeal filed by Torrent and will hear the matter in August. In the meanwhile, it has allowed the lenders to conduct a second Challenge Mechanism (base price set at Rs 9,500 crore set by the CoC) or conduct negotiations, which will be subject to its final order in the appeal filed by Torrent.

“This also means that the lenders cannot hand over the company to any bidder until the apex court passes a judgment in the RCap matter; none of the bidders is interested amid this uncertainty,” said the source.

With this, the RCap resolution process has almost stalled and has delayed the resolution, which started in November 2021.

If a second auction is conducted, it will also be fraught with the same challenge of a toppling bid being submitted by the losing bidder after the auction. Hence, the lenders will have to come out with a fool-proof solution to give certainty to bidders and revive interest in the resolution process, the source said.

The lenders to RCap had earlier submitted before the NCLAT (National Company Law Appellate Tribunal) that the CoC is being prevented from discovering the best price in the corporate insolvency resolution process and the NCLT acted more than its jurisdiction at a stage where even signed plans were not placed before the CoC for consideration.

In its written submission before NCLAT, Vistra ITCL (India) — RCap’s secured lender — said: “The NCLT has us­urped the jurisdiction of the CoC by holding that the CoC has to vote on the Rs 8,640-crore plan of Torrent and the Rs 8,110-crore plan of IndusInd Inte­rnational Holdings (IIHL), part of the Hinduja group, and that CoC has no jurisdiction to negotiate even on the figures.”

In limbo

• November 2021: RBI sends Reliance Capital for debt resolution under IBC
• December 2022: Torrent emerges as highest bidder with Rs 8,640-cr offer; Hinduja offers Rs 8,950 cr after auction
• February 2023: Torrent moves NCLT against second auction; NCLT asks lenders not to hold another auction
• March 2023:  NCLAT orders second auction to get maximum value for assets
• March 2023: Torrent moves SC; next hearing in August