New clause red-flagged by RCap bidders

In a move that might further delay debt-laden Reliance Capital’s (RCap’s) bankruptcy process, the bidders have raised concerns over the committee of creditors’ (CoC’s) decision to introduce a new clause, ‘Challenge Mechanism’. The move comes at a time when the insolvency process is inching to a closure, with the deadline to complete the process ending on January 31.

Under the new clause, the lenders can challenge any resolution plan as and when they want. There was no mention of this clause in the request for resolution plan (RFRP) document that was shared earlier, while the lenders have not clearly spelled out the contours of the clause, sources close to the development said.

The bidders for the proceeds under Option-I such as Hinduja Group, Oaktree Capital and Torrent Group, who are bidding for RCap as a core investment company (CIC), have raised flags on the introduction of this clause.

“The issue is the clause being added at this stage, which has the potential to delay, if not stall, the entire process,” a source added.

Separately, the bidders of Reliance General Insurance Company (RGIC) have again raised concerns over the company’s shares, which are not in the administrator’s possession.

The shares are currently in the possession of IDBI Trusteeship Services (ITSL), which in its capacity as a debenture trustee of Credit Suisse had invoked the shares in November 2019. Being the custodian of the shares, ITSL would have to submit it to the administrator for inclusion in the ongoing insolvency process.

On its part, ITSL was looking to recover its debt but now with the commencement of the corporate insolvency resolution process (CIRP), the administrator has sought to take control of RGICL’s shares.

Further, Indian bidders such as a consortium led by Piramal Enterprises and Aditya Birla Capital are also unhappy with the payment conditions applicable for cluster bidders under Option-II.

They believe the condition of making all cash bids and then full payment within 90 days will give foreign bidders with deep pockets an upper hand, while Indian firms will find it difficult to arrange funds in a short time.

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The Indian bidders have sought a deferred payment structure under the Option-2 bidding process, wherein the assets of Reliance Nippon Life Insurance are up for sale.

Also, foreign bidders of general and life insurance businesses are worried over foreign holding and lock-in period regulations. As per the government guidelines, foreign players cannot hold more than 74% in the Indian insurance venture. In addition, they have to adhere to a five-year lock-in period for their investment, while guidelines for private equity investors in the insurance sector are still at the draft stage.