IIHL seeks RBI approval to pledge 100% of RCap's shares

Proceeds from the proposed ₹8,000-crore fund-raise will be used to pay lenders of 's erstwhile bankrupt financial services company, people cited above said. The Reserve Bank of India () is evaluating the IIHL BFSI (India) proposal submitted in early May, the same people said.

IIHL did not respond to ET's request for comment.

Reliance Capital is among the handful of Indian financial companies, such as Dewan Housing Finance and Srei, to have had a successful under a bankruptcy framework that sought to extricate billions of dollars stuck in soured loans.

Although India's gave IIHL the approval to acquire three insurance companies of Reliance Capital, it restricted the winning bidder from pledging shares of insurers, ET reported Sunday.

Earlier, the Insurance Regulatory and Development Authority of India () rejected IIHL's proposal to raise money by pledging Reliance General Insurance and Reliance Nippon Life Insurance shares and directed it to submit a revised proposal that does not involve leveraging shares of the insurance companies to acquire Reliance Capital, ET first reported on October 14.

In its latest proposal to the RBI, IIHL BFSI (India) has said it will raise ₹3,500 crore by issuing secured non-convertible debentures (NCD) while Reliance Capital will raise ₹4,500 crore NCDs, the people said. The entire ₹8,000 crore will be raised by pledging shares of Reliance Capital.

As per the NCLT-approved resolution plan, IIHL BFSI Holdings (Mauritius) will hold a 100% stake in IIHL BFSI (India), which will hold a 100% stake in Reliance Capital.

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Shares of listed Reliance Capital will be cancelled, and the company will be delisted from the exchanges. Hinduja's resolution plan proposes that certain Reliance Capital assets will be transferred to Aasia Enterprises, which is 97% owned by IIHL BFSI (India) and the remaining 3% by members of the Hinduja family.

The proposal also said that the proceeds from the borrowing by Reliance Capital will be used for part-payment of the resolution plan, while proceeds from the borrowing by IIHL BFSI (India) will be used toward the partners' equity contribution in the partnership interest of Aasia Enterprises.

Although NCLT has approved the plan, IIHL is seeking the regulator's approval since, as per the Insolvency and Bankruptcy Code (IBC), a finance company can be sold only with the approval of the financial regulators - IRDAI, the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi).

Speaking to the media a week ago, IIHL chairman Ashok Hinduja had said: "IIHL is prepared to pay Reliance Capital's lenders within 48 hours of receiving the insurance regulator's approval."

The NCLT has directed IIHL to implement the resolution plan by May 27, subject to regulatory approval.

Y Nageswara Rao, the administrator appointed by the RBI, had admitted claims worth ₹25,345 crore from lenders to Reliance Capital as of January 10, 2024. The company has a cash balance of about ₹300 crore-400 crore, which will be distributed among the lenders.