The insolvency of Reliance Capital and the domino effect on its subsidiaries

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Lenders have already tried to finalize a resolution plan for two large non-bank lenders under the umbrella of Reliance Capital: Reliance Commercial Finance and Reliance Home Finance.

A second person familiar with the matter said various attempted asset sales to collect contributions were delayed because decision-making was blocked at the major shareholder level. Over the past 6-7 months, several transactions have been in the final stages, awaiting shareholder approval. The induction of a director will help clear that backlog, the person said on condition of anonymity, adding that any disputes between various parties will need to be monitored.

Abizer Diwanji, partner and head of financial services at EY India, said the platform can be sold as a whole or piecemeal.

Unlike other insolvency proceedings, where creditors have to regularize transactions, here they can simply proceed with the sale directly, Diwanji said. To solve a basic investment company, selling it as a platform is the best option, he said.

If this option is not on the table, the creditor may have to proceed with the sale of individual assets.

“The best way to do that would be to reach the end of the CIRP (Corporate Insolvency Resolution Process), start the liquidation process (for Reliance Capital), and then liquidate each of the investments,” Diwanji said. to BloombergQuint in an interview.

The decision to sell the company as a platform or individual companies will be taken by the creditors committee by vote. Approval from the National Company Law Court may also be required, said a third person closely involved in the process, who requested anonymity.

The assessment of the assessment by the administrator and a process advisor will be essential in deciding the direction of Reliance Capital, said the third person cited above. Until such a process is concluded, it is difficult to say whether a consolidated sale would be better than an individual sale of shares in subsidiaries, this person said.

Reliance Capital’s creditors committee will be primarily led by bondholders rather than banks. The debt securities represented Rs 16,260 crore, out of Reliance Capital’s stand-alone financial liabilities of Rs 22,664 crore, as of September 30.

Typically, in cases where bondholders are among the financial creditors, institutional actors sit on the creditors committee to discuss proposals. However, when it comes to voting on the proposals, the debenture trustees take matters into their own hands.

The third person cited above said that once the administrator creates a list of all financial creditors, it will become clearer whether institutional debenture holders have the highest exposures. If the creditors’ committee includes a number of smaller bondholders, it can cause undue delays in the proceedings, the person said.

The benefit of resolving Reliance Capital through an insolvency process would be that it would help put any issues between creditors on hold, Diwanji said. It will also ensure that creditors representing 66% of the capital will decide the fate of Reliance Capital, he said.


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