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The appointed administrator by the Reserve Bank of India (RBI) for the financially distressed Reliance Capital (RelCap) has initiated correspondence with IndusInd International Holdings Ltd (IIHL), the winning bidder in the acquisition of RelCap. The administrator’s communication raises inquiries about the origin of funds and the business strategy, in accordance with Google AdSense policy guidelines.

The administrator’s letter follows the rejection of IIHL’s proposal by the Insurance Regulatory and Development Authority of India (Irdai). IIHL had intended to secure funds for the acquisition of RelCap by creating a pledge using the shares of Reliance General Insurance (RGIC) and Reliance Nippon Life Insurance (RNLIC), both subsidiaries of RelCap. In light of this rejection, the administrator has called upon IIHL to resubmit their application with a transparent source of funds and a business plan that excludes the creation of a pledge over RGIC and RNLIC shares.

The administrator’s request to IIHL is prompted by a recent meeting with Irdai, during which the regulatory authority expressed that applications for change in control would not be favorably considered if they involve pledging shares of an insurance company as part of the funding strategy.

Notably, Hinduja Group is pursuing a debt of $850 million from international financial institutions and banks to finance the acquisition of RelCap. This funding is proposed against the collateral of RelCap’s assets, primarily consisting of a 100% stake in RGIC and a 51% stake in RNLIC, which collectively represent over 90% of the firm’s value.

IIHL had previously sought Irdai’s approval for a change in ownership control of RGIC and RNLIC, coupled with the creation of pledges on their shares to secure investments. Unfortunately, this request was declined by the regulator, underscoring the significance of Irdai’s approval in the successful resolution of the Reliance Capital transaction.

IIHL is currently in discussions with foreign banks to raise the $850 million required for the acquisition. Notably, the RBI had taken control of Reliance Capital on November 29, 2021, due to payment defaults and severe governance concerns, appointing Nageswara Rao Y as the administrator to oversee the Corporate Insolvency Resolution Process (CIRP) of the company. Reliance Capital is the third major non-banking financial company (NBFC) against which the RBI has initiated insolvency proceedings under the Insolvency and Bankruptcy Code (IBC). The other two entities being Srei Group NBFC and Dewan Housing Finance Corporation (DHFL). Subsequently, the central bank sought the initiation of CIRP at the Mumbai bench of the National Company Law Tribunal.

In February of the preceding year, the RBI-appointed administrator had solicited expressions of interest for the sale of Reliance Capital. In the midst of these developments, RGIC has faced multiple show-cause notices from the Directorate General of GST Intelligence, amounting to Rs 922.58 crore.


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