It is also proposed by Hinduja group to raise borrowing for acquisitions of shares of Reliance Capital Ltd , which will also violate the existing regulations, said IRDAI
Hyderabad:
The Indian insurance regulator IRDAI, as part of its due diligence process, has raised several fundamental issues over the proposal of Hinduja group, as submitted by the Reliance Capital’s administrator, appointed by the Reserve Bank of India, to take over insolvent company.
Earlier, in Feb, the National Company Law Tribunal(NCLT) had approved Hinduja Group firm IndusInd International Holding’s(IIHL’s) Rs 9,650-crore resolution plan for RCL and afterwards set date of May 31 to complete the transaction.
As the execution of resolution plan for financially distressed RCL, earlier owned by billionaire Anil Ambani, is now in the final lap, Nageshwara Rao, administrator of RCL , has sought the IRDAI ‘s nod on the deal as RCL has three insurance companies, – Reliance General Insurance Company and Reliance Nippon Life Insurance Company and Reliance Health Insurance Company.
The administrator, among other things, has sought approvals for transfer of shares from Reliance Capital to a new holding company promoted by Hindujas called Aasia Enterprises(AELLP).
However, after initial discussions with the administrator, the IRDAI has written to it asking for some clarifications on some fundamental issues involving the deal.
Industry sources said, the administrator will now go back to to Hinduja group about the IRDAI’s stand on certain issues in the proposal and the group has to now change a great deal of things in the proposal to meet the requirements of the IRDAI.
As mentioned in the IRDAI’s letter, dated Mar 20, to the administrator, some of the queries IRDAI has raised on the deal are:
-`It is proposed that the shares of RCL and IIHL are proposed to be pledged to raise funds , which will violate the existing insurance regulations, .
-It is also proposed to raise borrowing for acquisitions of shares of RCL , which will also violate the existing regulations,
-It is observed that the partnership interest of the AELLP and shares AELLP is proposed to be pledged which is not permitted under the existing insurance regulations,
-It is proposed to raise borrowing by the holding company AELLP which is not allowed under the existing insurance regulations,
-As per the structure provided, the RCL will be wholly owned by entities based outside India. In other words, RCL will have 100 per cent FDI which also needs further clarifications on whether it is allowed under the existing law,
-As per the structure submitted, it is proposed that another company is proposing to acquire entire equity of the RCL, which will make RCL as a wholly owned subsidiary of the said another company, which is not permitted under existing insurance regulations,
-The said transactions structure involves multiple SPVs(special purpose vehicles) based outside India for which necessary details have to be provided.
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