Bankers await closure of Reliance Cap acquisition by Hinduja Group

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Indian lenders are optimistic that the Hinduja group will be able to close the funding for the acquisition of bankrupt Reliance Capital before the end of the ongoing quarter following a big fillip to the valuation, taking into account the recent Zurich Insurance acquisition deal in the insurance space.


The Hinduja group is planning to raise funds from internal sources and private credit companies after the insurance regulator, the Insurance Regulatory and Development Authority of India (Irdai), did not allow the pledging of shares of Reliance General Insurance and Reliance Nippon Life Insurance Company. The group may look at raising by pledging shares of other group entities, said a banker. The lenders, who had an exposure of Rs 25,000 crore to Reliance Capital, had sent the company to the National Company Law Tribunal (NCLT) for debt resolution in November 2021 after it defaulted on its loans.


The Hinduja group did not respond to an email seeking comment on its future plans for Reliance Capital acquisition.


Bankers said the recent Kotak-Zurich Insurance transaction has come as a big boost to the Hindujas as the valuation of Reliance Capital insurance companies is at a significant discount to Zurich Insurance transaction.


According to the announcement, Zurich Insurance will invest around Rs. 4,051 crore to acquire a 51 per cent stake in Kotak General Insurance, which values it at Rs 7,943 crore on a post-money basis.


Kotak General Insurance has a Gross Written Premium (GWP) of Rs.1,148 crore and a networth of Rs. 341 crore, as on March 31, 2023, which values the general insurance business at seven times of its GWP and 21 times of its net worth. 


On the other hand, Reliance General Insurance, which is a 100 per cent subsidiary of Reliance Capital, has a GWP of Rs 10,339 crore and a networth of Rs 2,575 crore, as on March 31, 2023. Bankers said taking into account the same valuation formula, the current valuation of RGIC is in the range of Rs. 53,000 crore to Rs. 72,000 crore. 


But Indusind International Holdings, a Hinduja group holding company, is paying Rs. 9,600 crore for the acquisition of Reliance Capital group. The two insurance ventures, i.e., Reliance General Insurance and Reliance Nippon Life Insurance, constitute almost 99 per cent of the total Reliance Capital valuation. 


The entire IIHL transaction is awaiting an order from the Supreme Court. The top court has been moved by the Torrent group, the winner of the first auction, which had objected to the second auction conducted by the lenders. IIHL emerged as the single bidder for the company in the second round.