Acquisition faces hurdles: Piramal bid for Reliance Capital runs into regulatory wall

A consortium led by Piramal Group is one of the eight serious contenders for acquiring RCap’s assets, from whom creditors are seeking Rs 23,666 crore in dues.

The appointment of IRDAI chairman comes nearly 9 months after the vacancy was created following Subhash Chandra Khuntia completing his term in May last year.
According to IRDA, an investor cannot individually hold more than 10% and jointly more than 25% of the paid-up equity share capital in an insurance firm.

The Insurance Regulatory Authority of India (IRDAI) has raised concerns over Piramal Group’s stake in competing insurance firms, a move that could derail its plans to acquire debt-laden Reliance Capital (Rcap).

However, the group has an option to reduce its stake within 18 months, making it compliant to acquire the former Anil Ambani group firm. Piramal can, of course, apply for other businesses of RCap should it so decide.

A consortium led by Piramal Group is one of the eight serious contenders for acquiring RCap’s assets, from whom creditors are seeking Rs 23,666 crore in dues. A majority of the eight companies showing interest in bidding for the firm want to acquire the firm in its entirety. The Prospective Resolution Applicants included the Piramal Group, Yes Bank and HDFC Ergo. Lenders had extended the deadline for submitting resolution plans to June 30 from the earlier May 26 to rope in more suitors.

According to IRDA, an investor cannot individually hold more than 10% and jointly more than 25% of the paid-up equity share capital in an insurance firm.

Piramal Enterprises (PEL), a group company, is the holding company and promoter of Pramerica Life Insurance Company and holds 50% of the firm’s paid-up capital through its stake in DHFL Investments. Further, PEL has an indirect investment of about 20% in Shriram Capital, which is the holding company of Shriram Life Insurance Company with a 74.56% stake, IRDA said in a letter to the administrator of RCap’s resolution process.

The indirect holding of Piramal group in Shriram Life Insurance Company is 14.91% (20% of 74.56%), which exceeds individual investor limit, the letter, a copy which was reviewed by FE, said.

RCap is the holding company and promoter of Reliance Nippon Life Insurance Company, and in case Piramal Group acquires the debt-laden firm, it would also result in the acquisition of life insurance firm. This would be contrary to the regulatory framework in place in the sector as Piramal Group would be a promoter of two insurance companies – Pramerica Life Insurance Company and Reliance Nippon Life Insurance Company – the regulator said.

However, the authority has provided an option to Piramal Group to dispose of or bring down the stake to the prescribed limits within 18 months from May 4, 2022.

The authority, as its policy, does not allow any person to act as a promoter of more than one insurance company in the same line – life insurance, general insurance and health insurance – of business, it added. The letter, dated May 12, came after RCap’s administrator’s meeting with the regulator.

On November 29, 2021, the Reserve Bank of India had superseded RCap’s board following payment defaults and governance issues. The regulator also filed an application for initiation of Corporate Insolvency Resolution Plan against the company. In April, Credit Suisse and Axis Bank – two lenders to RCap – had dragged the firm to the National Company Law Tribunal, seeking recovery of debts worth Rs 760 crore. In February this year, the RBI-appointed administrator invited EoIs for sale of RCap’s assets.

Reliance Capital has interests in life, general and health insurance; commercial & home finance; equities and commodities broking; wealth management services; distribution of financial products; asset reconstruction; proprietary investments and other activities in financial services.

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