IndusInd Intl Holdings’s financing plan for Rcap purchase faces insurance regulatory hurdle

Mumbai: IndusInd International Holdings' (IIHL) proposal for a leveraged buyout of Reliance Capital (RCL) faces a setback, as the insurance regulator objects to pledging shares of RCL's insurance subsidiaries to raise funds for the acquisition.

IIHL successfully bid Rs 9,660 crore for Reliance Capital through the insolvency process, with the company being a key asset of the Anil Ambani group. The most valuable components of RCL are its subsidiaries, Reliance General Insurance and Reliance Nippon Life Insurance. While Reliance General is a wholly-owned subsidiary, the life insurance company is a joint venture with Nippon Life, holding a 49% stake.

Indian regulations prohibit using funds obtained through secured loans from banks for investment in the target company's assets. IIHL, headquartered in Mauritius, has already approved a capital raise of $1.5 billion to finance its stake increase in the bank and acquire Reliance Capital.

The Insurance Regulatory and Development Authority of India (IRDAI) conveyed its objection to IIHL during a meeting on October 9. Subsequently, IIHL will need to submit a revised plan that does not involve creating a charge on the insurance company's shares. Additionally, charging shares in an insurance company presents challenges as claim transfers require approval from both the regulator and the government in the case of foreign investment.

Previously, Nippon Life had opposed Aditya Birla's attempt to acquire RCL, fearing a potential merger of Reliance Life with Birla's insurance arm.