In a surprising move, the Hinduja Group has suddenly changed the entire structure of the deal for its acquisition of Reliance Capital (RCAP). The changes come just 10 days ahead of the May 17 RBI (Reserve Bank of India) deadline to close the deal. The NCLT (National Company Law Tribunal) deadline too expires on May 27. Also, what may sound baffling to most, the Hinduja's have proposed that RCAP will issue debentures for funding the RCAP acquisition. For all this, a fresh approval from RBI has been sought, which could further delay RCAP insolvency resolution.
The changes, as per the bankruptcy experts, puts RCAP insolvency resolution "back to square one" as Hinduja's will have to seek all the regulatory permissions again. This could be a major set-back for RCAP lenders, which included large public institutions like LIC and EPFO, since the wait for them to recover the loan may invariably be extended, experts say. Also, the interest to be calculated on the delay of the deal could run into hundreds of crores. Among the Hinduja brothers, Ashok P Hinduja is spearheading the acquisition deal.
Hinduja's original proposal that had won regulatory approvals from the RBI, NCLT and other authorities, was to acquire RCAP via Mauritius based Indusind International Holdings (IIHL) and Mumbai based AASIA Enterprises LLP (AELLP). But now at the eleventh hour, the Hinduja Group has introduced new companies into the deal. These include Cyqure India Private Limited, Ecopolis Properties Private Limited, Cyqurex Technologies Private Limited and IIHL BFSI Holding Limited. Recent documents show that IIHL has sought fresh permission from RBI with regard to introduction of the new companies in the transaction.
As per the recently proposed changes, Cyqure India will act as the holding company of AELLP since it will be holding a majority stake. Ashok Hinduja, Harsha Hinduja and Shom Hinduja will be the key shareholders of Cyqure. Then, IIHL BFSI (India) Limited, an entity in which IIHL (Mauritius) will hold 51 percent or more shareholding is the implementing entity. Accordingly, IIHL BFSI will hold 100 percent equity shares of RCAP. Further, IIHL BFSI Holdings (another company) holds 100 percent equity shares of IIHL BFSI. In IIHL Holdings, 51 percent is held by IIHL and the remaining 49 percent is held by an equity partner (yet to be disclosed).
Hinduja's have themselves admitted that they revised the transaction structure subsequent to NCLT's approval. It may simply amount to revisiting the entire regulatory approvals by the authorities thereby putting the resolution plan on square one, experts say.
"Subsequent to the receipt of NCLT approval, the transaction structure was reviewed and necessitated changes including the introduction of new entities to enable seamless implementation of the resolution plan. Accordingly, Cyqure India, Ecopolis Properties and Cyqurex Technologies were introduced in the transaction structure," Hinduja Group has informed the RBI to seek fresh approvals.
RCAP Will Fund Its Own Acquisition?
Hinduja Group had agreed to pay Rs 9850 crore to RCAP's lenders to close the acquisition. But its funding arrangement for the same is baffling. As per the proposed deal structure, for which a fresh RBI approval has been sought, RCAP will issue debentures (non-convertible) worth Rs 4500 crore on a private placement basis to certain identified eligible investors (names not disclosed in the proposal). This, the Hinduja Group has said, is part of the implementation of the Resolution Plan and financing. IndiaHoldCo, a Hinduja Group entity, will issue debentures to the tune of Rs 3500 crores.
"The proceeds of the borrowing by RCAP shall be utilized by RCAP inter alia for payment of part of the resolution plan consideration amount (in terms of the Resolution Plan) to the stakeholders of RCAP," Hinduja Group has informed the RBI in its proposal that was sent for fresh approval.
Further, the Hinduja Group has said that the "proceeds of the borrowing by the India HoldCo shall be utilized towards partners capital contribution by the India HoldCo in the partnership interest of Aasia (AELLP), which in turn will be used by Aasia to acquire the assets and investments of RCAP in terms of paragraphs 5.3.3 and 5.3.4 of the Resolution Plan or such assets as may be acquired by Aasia pursuant to discussions with the monitoring committee."
To secure the obligations of RCAP and India HoldCo in respect of the borrowings (referred to hereinabove), amongst others, it has been proposed that the implementing entity will create a first-ranking security interest by way of pledge over the entire issued and paid-up share capital of RCAP, the proposed deal structure states.
Pledged Over RCAP Shares
Non-resident investor IIHL BFSI, where IIHL Mauritius will hold 51 percent or more, will create a pledge on the shares of RCAP. For this, the Hinduja Group has sought the approval of RBI's Foreign Exchange Department. Simply put, IIHL BFSI will pledge RCAP shares to a foreign or Indian bank or a non-banking finance company to raise funds. The IIHL BFSI application to RBI says "approval for creation of pledge on equity shares of RCAP to be held by IIHL BFSI (India), an entity incorporated in Mauritius, for securing certain financial indebtedness to be availed by RCAP and Cyqure India."
"Since the borrowings are proposed to be availed by RCAP and the India HoldCo from eligible investors which include alternate investment funds and other eligible investors, in light of the regulations set out above, the creation of pledge over the shareholding of RCAP by the Implementing Entity will require approval of the RBI. Please note that we are required to obtain the consent of your good offices in relation to the creation of the pledge (as set out above) as a condition precedent to the proposed financing." Hinduja Group entity has said in its proposal to seek RBI nod.
