Breaking Down IndusInd’s Acquisition of Reliance Capital
- Priyanshu Shrivastava
- Jan 2
- 3 min read
Updated: Jan 7
TL;DR: IndusInd International Holdings Ltd. is about to complete its acquisition of Reliance Capital. It successfully bid over Reliance Capital in a process under the Insolvency and Bankruptcy Code. The acquisition cost is ₹9,861 crores and the buyer is financing this through a mix of equity and debt.
Table of Contents
What Happened?
IndusInd International Holdings Ltd. (IndusInd) is expected to complete its acquisition of Reliance Capital soon in January 2025. This is a big step for IndusInd as it aims to become one of the top players in the Banking, Financial Services, and Insurance (BFSI) industry.
How did IndusInd Acquire Reliance Capital?
Reliance Capital's Insolvency: Reliance Capital couldn’t pay back its debts, and there were problems with how the company was run. In 2021, the Reserve Bank of India (RBI) stepped in, removed its board, and appointed an administrator to run the company.
The RBI's application to initiate the 'Corporate Insolvency Resolution Process' (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) was accepted by the Tribunal.
IndusInd's Successful Bid: IndusInd's bid to acquire Reliance Capital was accepted by the creditors and approved by the tribunal in February 2024. The total cost of this acquisition is ₹9,861 crores. With this, IndusInd would own Reliance Capital and its subsidiaries, like Reliance General Insurance and Reliance Nippon Life Insurance.
One of the competing bidders had (unsuccessfully) challenged the bidding process (certain blogs deal with this issue in detail: here and here).
How is IndusInd Financing this Acquisition?
IndusInd has to pay the creditors upfront cash to acquire Reliance Capital. It is raising a total of ₹11,050 crores. This amount is more than the acquisition cost as IndusInd is likely raising extra money to manage operational costs. It is funding this acquisition through a mix of equity and debt.
Equity: ₹2,750 crores by injecting capital into Reliance Capital as equity.
Debt: IndusInd is raising debt to fund the acquisition in two tranches/rounds:
1st Tranche: ₹3,000 crores through debentures. These debentures are non-convertible (i.e., they cannot be converted into equity on maturity) and secured against the shares of Reliance Capital. They are listed on the Bombay Stock Exchange (under the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021). These debentures are also zero-coupon and offer a 14.50% yield. Zero-coupon debentures do not pay regular interest (aka coupons), while yield refers to the total return on investment.
2nd Tranche: ₹4,300 crores from private investors through debentures with a 15% coupon rate. Barclays Capital (Barclays) is taking a lead on facilitating the issuance of these debentures (aka 'anchoring'). Barclays, along with wealth manager 360One, has committed to buy a part of the debentures if no one else does (aka 'underwriting'), ensuring IndusInd gets the funding. Barclays is also managing the remaining debentures, including finding investors and structuring deals.
Sale of Assets: IndusInd plans to raise ₹1,000 crores by selling some assets of Reliance Capital that are not important for its main business, particularly real estate property.
What has been the Role of Law Firms?
Insolvency Proceedings: Law firms represented the different stakeholders in the CIRP. E.g., lawyers representing the resolution applicants (including IndusInd) aimed towards meeting the statutory requirements, lenders' lawyers focused on protecting their clients' interests and filing necessary applications to the tribunal for any urgent reliefs, and IndusInd focused on getting the necessary approval of the tribunal after winning the bid.
Due Diligence: Law firms conducted due diligence of Reliance Capital on behalf of potential acquirers (aka 'buyer-side due diligence') and of the potential acquirers (or resolution applications) on behalf of lenders (aka 'seller-side due diligence').
Financing: IndusInd was advised by law firms on structuring and drafting the relevant documents for its debt financing (discussed above) and sale of assets.
Regulatory Approvals: Law firms assisted IndusInd in getting approval from multiple regulators, particularly the Competition Commission of India, the Reserve Bank of India, and the Department for Promotion of Industry and Internal Trade.
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