Reliance Capital debt resolutions have faced a shock as administrator and lenders try to resolve disputes

Reliance Capital’s (RCap) debt resolution process has hit a snag with differences between the RBI-appointed administrator and the creditors’ committee over the sale of some of the non-banking finance company’s for-profit subsidiaries.

Under the resolution plan, potential bidders have two options to acquire the assets of RCap. They can either bid for all of Reliance Capital under the first option, or bid for different clusters or subsidiaries under the second option. No less than 55 entities, including YES Bank, Piramal Consortium, Adani Finserve, Brookfield, Bandhan Financial Holdings and Blackstone, have submitted expressions of interest to acquire the company. Nearly two dozen players have expressed interest in bidding under both options, others wish to bid only for selected clusters or subsidiaries such as Reliance General Insurance, Reliance Health Insurance, Reliance Nippon Life Insurance, Reliance Asset Reconstruction and Reliance Securities. According to banking sources, differences had emerged between the trustee and Reliance Capital’s creditors’ committee over the resolution process of the company’s subsidiaries.

According to a second source, differences had emerged over whether to invite price offers for individual clusters under the second option. Another concern was whether group-level submissions under the second option could present a plan that complied with the Insolvency and Bankruptcy Code.

“All subsidiaries or clusters are for-profit and well-capitalized entities. There is therefore no turnaround requirement as none of these entities are under stress and are well run businesses,” the source said.

According to IBC, no conforming plan can be submitted under the second option because there is no requirement for reversal.

“Under these circumstances, only the first option of RCAP Level Plans can be considered and approved under the IBC,” the source noted.

Due to this difference, the request for a resolution plan, which was to be issued on April 5 by the administrator, has been delayed.

Sources close to the resolution process said the issues were being discussed between the CoC and the Administrator and the RFRP is now expected to be released in the second week of April. The RFRP document defines the guidelines for the submission and evaluation of the resolution plan and it must be agreed between the administrator and the CoC before being released to all potential submitters.

“There have been discussions about how best to monetize assets. There are a few points that have been clarified and the terms of the RFRP are now under discussion,” a source familiar with the development said, adding that it is expected to be released soon.

Consortium formation

According to the first source, the CoC is keen on forming a consortium for cluster-level bidders, but the admin may not be in favor of it. “Now the resolution can be made for all of Reliance Capital, under both options,” the source said. If that happened, the number of bidders would drop dramatically, as those who want to acquire only specific subsidiaries could be excluded from the race.

Published on

April 10, 2022

Julio V. Miller