RCAP Deal: Does The Hinduja Group Have The Money?

The Rs 9,850 crore deal involving the acquisition of Reliance Capital (RCAP) is stuck over a simple question: when will Hinduja Group bring the money on the table? The group, which claims to be among the richest in Europe with a fortune of more than $32 billion, has been reluctant to bring just around Rs 250 crore (equity money) on the table for the lenders of RCAP to feel confident about the deal, the sources in the know said. Despite the RCAP deal hanging like a sword and not being able to pay the equity money to the lenders on time, the group has further committed investment to buy a majority stake in Invesco Mutual Fund where it will hold a 60 per cent stake.

After having won approval from the National Company Law Tribunal (NCLT) to acquire RCap in a debt resolution deal worth Rs 9850 crores in October 2023, the Hinduja Group company Indusind International Holdings (IIHL) has missed two deadlines for payment to RCap creditors. The last deadline of 90 days ended on 27 May. Even more than 45 days after the 27 May deadline, the Hinduja Group has not been able to put the minimum equity share on the table. The group is planning to raise more than Rs 7000 crores via non-convertible debentures (NCDs) on which it will end up paying a high interest rate on maturity, the sources said.

In the RCAP deal, Hinduja Group's two companies Indusind International Holdings (IIHL) and AASIA Enterprises LLP (AELLP) have promised to bring approximately Rs 2,750 worth of equity money while the rest is to be financed by debt. The lenders and the courts have asked the Hinduja Group to bring AELLP's share of Rs just Rs 250 crores, which will prove that the group actually has some money of its own to finance the deal. But even 45 days after the last deadline ended, there has been no announcement from the group about the equity money.

No Money, More Deals In Pipeline?
In legal proceedings at the NCLT last month, the lawyers appearing for IIHL told the tribunal judges that their money was deployed somewhere else and that they would bring equity money for this deal only after debt-linked fundraising was complete. Lawyer Gaurav Joshi, who appeared on behalf of RCAP's administrator appointed by the Reserve Bank of India (RBI), told the tribunal to record such a statement that the Hinduja Group had no money for the current transaction.

Even the NCLT bench was surprised and asked why IIHL had failed to bring money on the table. The NCLT bench wanted to know as to why even after a year of the approval of the resolution plan by the tribunal, the Hinduja Group had still not finalised the term sheets, which were still not binding. IIHL counsel Venkatesh Dhond told the tribunal that they would bring the equity money on the table after debt fundraising. On this, the council for the Committee of Creditors of RCAP said as per the international norms of financing equity money has to first come on the table followed by debt money. The NCLT had reserved its order on granting any further extension to Hinduja Group to honour the deal.

IIHL, a Mauritius-based entity, is in the process of raising funds for the RCAP acquisition. But around 50 per cent of Hinduja Group's holding in Indusind Bank has been pledged in the past and remains with the lenders. Apart from the RCAP deal, the group has also committed investments for a 60 per cent stake in Indusind Bank. Further, IIHL has also won approval from the RBI to hike the group's stake in Indusind Bank to 26 per cent from around 16 per cent currently -- all of which will require billions of dollars when it has been unable to bring just Rs 250 crores before within the deadline.

RCAP Creditors Getting Impatient
The creditors want the NCLT to subject any further extension to the Hinduja Group, if at all granted, to forfeiture of performance and bank guarantee (PBG) and money lying in escrow as equity component to RCap to secure the interests of the creditors and protect them from further losses which will accrue due to delayed implementation of the Resolution Plan. The creditors have further told NCLT that they do not rule out plea for more extensions by IIHL beyond the extended time if any and hence they want to be adequately secured.

Hinduja Group's plea for an extension of the deadline to close its buyout of RCAP has been strongly opposed by the company's creditors, which include large public funds like insurance funds, pension funds and employee provident funds. The administrator appointed by RBI to overseas RCAP has also opposed deadline extension in strong words. The grounds for the extension provided by the Hinduja Group are misleading and baseless, and ought to be rejected, the administrator Nasasware Rao has told NCLT. RCap creditors also include retail bondholders, army welfare funds etc. The creditors have told NCLT that they are incurring losses to the tune of Rs 40 crore per week due to the delay in the corporate insolvency and debt resolution process of RCap.

In November, RBI gave six months to IIHL to make the payment but the deadline ended on 17 May without Hinduja putting money on the table. Also, the NCLT deadline will end on May 27. Now the group is seeking an extension of the deadline from the RBI and NCLT, which has only two options: give some leeway and extend the deadline or ask the RCap administrator to cancel the current deal and issue a new Request For Resolution Plan (RFRP).

Two weeks ahead of the deadline, Hinduja Group has presented a revised offer for which it now requires approvals from around a dozen regulatory authorities including RBI, Sebi, Competition Commission of India, stock exchanges, NCLT etc. Hinduja Group revised the deal structure on the back of reasoning that insurance regulator IRDA had raised several concerns over its old structure.

Unnecessary Delay Tactics Say Creditors
According to the RCap creditors, IIHL's change in structure and attempts at seeking revised approvals are beyond the Resolution Plan. The RBI administrator has told the NCLT that the consequences of IIHL’s failure and negligence to seek the required approvals cannot and ought not to be borne by the Corporate Debtor and its financial creditors. The delay in receipt of the approval is solely on account of IIHL’s conduct. The administrator says that IIHL has not even been able to satisfy the Monetary Committee (MC) of its ability to undertake its payment obligations as per the Resolution Plan.

According to the administrator, IIHL had claimed that it had successfully secured term sheets/ sanction letters from reputed financial institutions confirming that they would lend to IIHL an aggregate sum of Rs 7,300 crore but failed to annex the same. IIHL instead annexed two letters dated 10 May 2024 issued by 360 One Asset Management and Barclays Bank PLC which were ex-facie non-binding in nature and are mere proposals, and explicitly state that they are subject to further terms to be agreed with IIHL as well as several conditions precedents and regulatory approvals.

Further, the letters did not set out any of the purported / proposed terms for the financing, whatsoever. "Thus, even now, no documentation has been provided or produced by IIHL to evidence its ability to undertake the payment obligations," the administrator said.

IIHL had effectively misled the CoC when it confirmed that its funding was in place and it had misrepresented the discussions of the MC in its application, the administrator has said. Further, the administrator says that IIHL would be liable to pay interest on an amount of INR 9861 crores at the rate of 12 per cent per annum from 27 May 2024.