Budget Impact: Bidders Redraw Valuation Of Debt-laden Reliance Capital

The removal of tax incentives in the Budget for life insurance companies has made the sale of Reliance Capital’s assets unattractive for acquirers.

Since the Budget, the valuation of listed insurance companies is down 3-11 per cent, making bidders like Torrent and the Hinduja group go back to the drawing-board, say banking sources.

Reliance Capital’s assets include its 51 per cent stake in the group’s life insurance venture and 100 per cent in the general insurance company.

In the auction held in December last year, Torrent had offered ~8,640 crore and the Hinduja group ~8,100 crore for Reliance Capital. But as the Hinduja group increased its bid to ~9,000 crore in an all-cash deal, Torrent had moved the National Company Law Tribunal (NCLT), which ruled in its favour.

The dispute is now pending at the National Company Law Appellate Tribunal (NCLAT).

A bidder said the removal of tax incentives for high-value life insurance in the Budget had taken them by surprise.

“The share prices of all life insurance companies fell sharply since the Budget because investors are worried that life-insurance customers would look at other options. As our offers were based before the Budget, we have to re-think our strategy,” the bidder said.

Neither Torrent nor the Hinduja group commented on the matter.

In its petition at the NCLAT, the Hindujas have argued the net present value (NPV) through the challenge round was ~8,110 crore, but represented only 30 per cent in the evaluation matrix and the NCLT had provided undue weighting to the NPV submission of Torrent and had failed to consider that the NPV factor was the outcome of the payment proposition in the respective resolution plans. The Hindujas argued the other criteria prescribed by the lenders had to be looked into while considering the aspect of value maximisation and viability/feasibility of plans.

The Hindujas said the NCLT had failed to consider that its offer was compliant and the outlay in the revised plan included heads under the “total payment to creditors” as set out in the process document.

The NCLAT will hear the petition on Friday.

Reliance Capital was sent to the NCLT under the Insolvency and Bankruptcy Code in November 2021 after the company defaulted on debt worth ~24,000 crore.

The committee of creditors wants to conduct a second-challenge mechanism and had requested urgent relief from the NCLAT because the lenders are facing a loss of interest of ~45 crore every week.

In the previous hearing at the NCLAT, senior advocate Mukul Rohatgi, appearing on behalf of Torrent Investments, argued that the Bench should hear all the parties before taking any decision.

The resolution process of Reliance Capital has crossed 425 days (as against the statutory limit of 330 days). The legal challenge against the NCLT order by the lenders has increased the delay in resolution.

Meanwhile the general insurance subsidiary of Reliance Capital has written to the administrator of Reliance Capital, saying it is in urgent need of capital of ~600 crore to maintain capital adequacy as mandated by the insurance regulator. In case the parent company fails to infuse the money, Reliance General Insurance may face stricter action from the regulator as well as further scrutiny from policy holders in addition to constraints on growth.