Creditors of Reliance Capital (RCap) are playing hardball with billionaire Ashok Hinduja. Since he has not been able to arrange finance to pay up the RCAP creditors within the deadline, the committee of creditors (COC) is now seeking Rs 3000 crore first in an escrow account before granting any further extension of the deadline, sources close to the COC told Businessworld from Singapore.
Not only this, the COC also wants 14 percent (annualised) interest for the month of June and 19 percent interest for July (of the total value of the resolution plan) to grant a 90 day extension of the deadline, sources say. Otherwise, the COC wants to encash the bank guarantee provided by Hinduja Group and call it an event of default. The matter will come up for hearing on June 6 in the National Company Law Tribunal, where major fireworks are expected.
Last year, the Hinduja Group entity Indusind International Holdings Ltd (IIHL) had won a bid in NCLT to acquire debt ridden RCAP in a deal worth Rs 9850 crores (resolution amount to be paid to creditors). But the NCLT deadline for the deal ended on May 27 and the Reserve Bank of India (RBI) deadline ended on May 17, without IIHL bringing any money on the table. This has irked the lenders since the Hinduja Group has changed the terms of its proposal without showing any money to the COC. For this reason, the COC is now demanding "a whiff of money" to merit any further extension of the deadline to IIHL, the sources said.
The Hinduja's have sought more time on some pretext or other - their revised plan proposes a bizarre idea i.e. to pledge 100 percent shares of RCAP (target company) to raise majority of funds to buy RCAP. For the COC, this begs the question: Do the Hinduja's have their own money at all for the deal?
Also, Hinduja Group twice defaulted on their promise: first when it missed the March 31 deadline and second again this month after insurance regulator IRDA approved its proposal. Promoter Ashok Hinduja had declared that they would be clearing the dues within 48 hours of IRDA's approval of their proposal, which came on May 10 - but there is no word from the Hinduja's on clearing the dues yet, more than two weeks after IRDA's clearance.
The fate of Hinduja Group now rests with NCLT and RBI.
Event Of Default: RFRP Clause
The RFRP of RCAP in clause 7.6.1 says, "Pursuant to the issuance of the Letter of Intent to the Successful Resolution Applicant(s), the Successful Resolution Applicant(s) shall be required to comply with the terms and conditions in the manner and in accordance with the timelines, in each case as set out in the Letter of Intent or as may be specified by the CoC or the Administrator, including execution of the definitive agreements, if required. The Successful Resolution Applicant(s) shall be responsible for effective implementation of the Resolution Plan(s) and shall comply with the Resolution Plan(s) and the definitive agreements and take all steps to ensure implementation within the timelines indicated.'
Clause 7.6.5 on Failure: "Upon receiving NCLT approval, if the implementation of a part(s) Resolution Plan fails, the Administrator and the CoC reserve the right to proceed against the relevant Resolution Bidder/Resolution Applicant who has failed to implement its respective part of the Resolution Plan and such other parties (including Resolution Bidders and Resolution Applicants) who have caused or contributed to such failure of implementation of the Resolution Plan."
On 13 March, the NCLT had asked IIHL to implement the resolution plan by March 31, and complete payment for the takeover in accordance with the resolution plan by 28 May.
“You are cognizant of the fact that implementation of the resolution plan in totality, especially of the size and scale of Reliance Capital Ltd in less than one month and 10 days (from the date of the order which was 27 February), is not only untenable and impractical, but unimaginable," IIHL had said in a letter to the administrator of RCAP.
But even three months after approval of its plan for the deal, the Hinduja Group has not been able to bring money on the table and instead has delayed by submitting a revised plan.
