RCap Deal: Hinduja Group Defaults

Counted among Europe's richest, the Ashok Hinduja Group has defaulted on the deal to acquire India's Reliance Capital (RCAP) in terms of the recent order by the National Company Law Tribunal (NCLT). In a letter to Indusind International Holdings Ltd (IIHL), a Hinduja Group entity that has won the bid in October 2023 to acquire RCAP, the Committee of Creditors (COC) of RCap have informed IIHL that it was now a defaulter on the NCLT order.

In the July 23 order, the NCLT had warned IIHL that it would become a defaulter if it failed to deposit the initial equity amount of Rs 250 crore in a domestic escrow account and Rs 2500 crore in a offshore escrow account of the COC by July 31. On August 1, Vistra ITCL, the trusteeship acting on behalf of the COC, informed IIHL that it had defaulted on the NCLT order since it did not deposit the money in the two escrow accounts and the creditors now reserve their rights and remedies as per the resolution plan submitted by it. The COC can now encash around Rs 500 crores in bank guarantee provided by IIHL for the deal and float a new Request For Proposal (RFP) inviting new bidders for RCAP. The letter written by Vistra is in the possession of Businessworld.

After IIHL defaulted on the third deadline on May 27, the NCLT in July gave the entity time till August 10 to conclude the deal. The tribunal's only condition was that IIHL deposit the initial equity amount in the deal in the two escrow accounts by July 31 and present binding term sheets for the rest Rs 7300 crores that it had proposed to raise via debt. This was to assure the COC that IIHL actually had the money for the deal.  

"COC notes that IIHL has not complied with the NCLT directions. In the view of the default of the NCLT order by you, the rights and remedies of the COC in law and equity as well as under the request for resolution plan and documents in relation thereto are reserved. No delay, indulgence, act or inaction on part of the COC shall be considered as a waiver on the aforementioned rights and remedies, unless communicated in writing," Vistra's letter written yesterday to IIHL stated.

RCAP is among the only three companies that RBI had dragged to insolvency proceedings. Debt resolution for the other two: Srei Infra (which went to government owned NARCL) and DHFL (to Piramal Group) closed successfully. But RCAP has stretched longer due to the inability of Hinduja Group to bring money on the table for the deal. It has been nearly two years that Hinduja Group has been trying to acquire RCAP. The NCLT had approved the Resolution Application (RA) by IIHL, a holding company of the Ashok Hinduja Group, in October 2023. Since then, the Hinduja Group has been unsuccessful in bringing just Rs 2750 crores on the table in the total deal worth Rs 9850 crores and has missed several deadlines by the NCLT as well as the RBI.

As per the Request For Resolution Plan (RFRP), if the NCLT and the RBI deadlines expire and the money does not come, it turns out to be an event of default. In such a case, the bank guarantee of the resolution applicant can be encashed. Also, the next step would be to cancel the letter of intent (of resolution applicant i.e. Hinduja Group) and ask the RCAP administrator to again issue form G... i.e. new RFRP and call for fresh bids. This has happened in several cases in the past wherein the resolution applicant could not close the deal. There is no other choice if the money does not come and RBI's credibility is at stake and it needs to call the bluff of the resolution applicant at some point in time.

Hinduja Group Moved NCLT
Last week, IIHL moved an application with the NCLT, Mumbai branch seeking a modification to the July 23 order of the NCLT and made RCP's Administrator (appointed by RBI), the company's Monitoring Committee and COC as respondents. IIHL prayed that the NCLT modifies its order with regard to default and also direct Administrator and COC to refrain from taking any coercive steps / actions against it including but not limited to invocation of Performance Bank Guarantee, which it said would consequently jeopardize the implementation of the Resolution Plan. The NCLT is yet to grant any such relief to IIHL but instead it now stands as a defaulter in terms of the tribunal's July 23 order.

IIHL had presented a long list of procedures to be undertaken by the COC and the Administrator for the deal. But there is a view among the lenders that such procedural matters can be proceeded with further once IIHL and the Hinduja Group shows that they have the money for the deal by depositing the initial equity amount in the escrow accounts, sources said.

List of demands by IIHL from COC and Administrator included finalization of the Trustee and its appointment for the purposes of carving out the assets from RCAP, detailed list of the creditors and their distribution break up as to whom the remittances have to be made under the Resolution 
Plan, Determination of Record Date for de-listing of NCDs and equity shares of RCAP and action taken so for making an application to the Regulatory Body for seeking delisting of the said NCDs and equity shares of RCAP. There is a long list of such demands. But the view among the COC of RCAP is that Hinduja Group was just using delay tactics since it did not have the money immediately to conclude the deal.

COC is likely to float a fresh offer for sale of RCAP in the coming weeks, sources said.