Hindujas say ₹9,860 cr R-Cap deal delayed over FDI rules, regulatory clearances

Mumbai: Private sector lender IndusInd Bank Ltd’s promoters—the Hinduja Group—on Wednesday, sought a 90-day extension till the end of August to complete their acquisition of erstwhile Anil Ambani-promoted Reliance Capital, arguing that approvals from the Reserve Bank of India (RBI) and the government are causing a delay to the ₹9,861 crore deal.

In an affidavit filed with the National Company Law Tribunal (NCLT), the IndusInd International Holdings (IIHL), a Mauritius-based promoter group firm of the Hindujas, said due to an ambiguity over the extant foreign investment norms, an ongoing work by the lenders (for the deal) on a renewed borrowing proposal for ₹7,300 crore, and a nod awaited from the central bank, the closure of the deal will take time.

Also read: NCLT grants Hindujas more time to repay Reliance Capital lenders, secure regulatory approvals

Mint has reviewed a copy of the affidavit, which may be presented before the NCLT in the next hearing on the matter.

Resolution Plan Approval

In February, NCLT had approved a ₹9,861 crore resolution plan involving acquisition of Reliance Capital (R-Cap) by IndusInd International. The deal proposal includes ₹7,300 crore in the form of borrowing (debt) from lenders, ₹2,500 crore by equity infusion by IndusInd International from outside India, and another equity infusion of ₹250 crore by one Cyqure India (a Hinduja Group associate).

The affidavit says while IndusInd International is waiting for crucial approvals for foreign investment from the government and RBI, the lenders, who are meant to extend the ₹7,300 crore facility for the deal, are “reworking the lending documentation” and are expected to complete this in the next few weeks.

Also read: Lenders refuse to extend RCap resolution deadline as Hindujas delay repayment

“What is not realised or appreciated by those who are critical of the applicant (IndusInd International) is the fact that a total of 37 different documents/contracts/writings have to be finalized,” says the affidavit.

As per the original terms of funding the deal, the ₹7,300 crore loan was supposed to contain a cross-guarantee.

RBI Rejection

On 22 May, the RBI had rejected this application by IIHL, which was an “extremely a critical part of the structure” for lenders to the transaction.

Due to this, IIHL was compelled to find an alternate security structure.

Then, after more than 10 meetings and multiple discussions held between 23 May 2024 and 30 May 2024, a consensus amongst lenders and IIHL was reached on 30 May 2024 on an alternate security package, says the affidavit.

Also read: Hindujas raise bid for  Reliance Capital in surprise move

This alternate package is meant to ensure provision of a security to the lenders through a “put option on the overseas holding company”.

Following the agreement on 30 May, the revised term sheets have been confirmed via emails on 6 June 2024 from both the lenders—Barclays Bank, and 360 One—says the affidavit.

Latest Affidavit

The latest affidavit follows an earlier affidavit filed by the R-Cap administrator, which alleged that there has been delay on the part of IIHL in implementation of the resolution plan.

The NCLT had directed IndusInd International to implement the resolution within 90 days ending 27 May. The affidavit aims to extend this deadline further by 90 more days without imposing additional conditions.

Also read: Implementation of RCap resolution plan by 31 March deadline untenable: IIHL

The latest submission by Hindujas argues that there is an ambiguity over foreign investment rules in corporate debtor (Reliance Capital, in this case) pertaining to core investment companies.

“This was not foreseen,” says the affidavit.

Delayed Approval

The Hindujas argued that the difficulties that have resulted in a slight delay are related to the approval from the department for promotion of industry and internal trade.

“The interplay between the rules and the FDI Policy has resulted in a conundrum and it was only during the meeting of the representatives of the applicant (IIHL) with the RBI held on 29 April 2024, that the applicants were advised to obtain approval,” said the affidavit.

Also read: IIHL cannot annul Esops of Reliance General: Law firm 

More recently, on 8 June, the RBI’s foreign exchange department sought certain clarifications from IIHL, it said.

For effecting the deal, IIHL said it has secured verbal advice from a law firm in UK and Mauritius, advising the lenders to the deal.

A confirmation on this has been sent to the administrator on the structure and the alternative security package on 31 May.

The Hindujas claimed that a considerable amount of time has been spent since September 2023 in order to satisfy all requirements of the country’s insurance watchdog and other regulators.

Hinduja Assurance

Since the deal involves two insurance subsidiaries of Reliance Capital, it requires the approval of the Insurance Regulatory and Development Authority of India (IRDAI).

IRDAI, the affidavit said, has issued formal letters seeking clarifications to the resolution plan on 20 March and 23 April 2024.

To this, IIHL has submitted a detailed written submission on 29 April 2024, says the affidavit.

“This process of approval has therefore caused some delay. This delay is not on account of the IIHL but purely on account of unforeseen developments,” it said.

The Hindujas said that to ensure that Reliance General Insurance Co. Ltd (a subsidiary of Reliance Capital) meets its capital adequacy norms and does not default, IIHL had committed a ₹200 crore capital infusion into RGICL.

The affidavit also argued that Hindujas are well positioned to fund the acquisition deal.

IIHL Demonstrates Financial Strength

With regards to the ₹2,750 crore equity infusion component cited above, IIHL said it has already demonstrated its bona fide certificate from its statutory auditors D & G Associates LLP on 20 May.

“If the certificate of the statutory auditor is not considered sufficient, the applicant will obtain an affidavit from the said auditor confirming what is stated in the certificate. If even this is not considered enough, the applicant is willing to file an affidavit from a reputed chartered accountant in India confirming the capability of the applicant to infuse the required equity infusion amount,” said the Hindujas’ affidavit.

Also read: Irdai seeks details of IndusInd International shareholders for R-Cap deal nod

IIHL has already submitted an on-demand bank guarantee of ₹483 crore issued by Standard Chartered Bank to the administrator and erstwhile committee of creditors, said the affidavit.

IIHL owns 15.1% in IndusInd Bank, which has a market capitalization of over ₹98,000 crore.

The Hindujas argues in the affidavit that IIHL is a public company in Mauritius with consolidated assets of at least $2.5 billion.