Reliance Capital's NBFC portfolio shrinks to just insurance

Reliance Capital (RCap), the non-banking finance business of the Anil Ambani group, will end up as an insurance company with general and life insurance businesses after the company failed to service debts in subsidiaries-- Reliance Commercial Finance (RCFL) and Reliance Home Finance (RHFL). Both lending businesses have approached lenders for resolution plans. "The lenders will look for new investors to take over and turn around the businesses and, if they fail, they will take defaulting companies to bankruptcy court," said banking sources in the know.

After saying RCap will no longer be in the lending business, Anil Ambani told shareholders at the annual general meeting (AGM) of the company that RCap will continue as financial shareholder in both lending businesses. "The effective debt of RCap will stand reduced by Rs 25,000 crore (which is the debt of RCFL and RHFL together)," Ambani said.

RCap is in the process to sell its entire stake in the lucrative mutual funds business-- Reliance Nippon Life Asset Management (RNAM)-to joint venture partner, Japan's Nippon Life Insurance. The entire proceeds of Rs 6,200 crore from the RNAM stake sale will be used to reduce RCap's outstanding debt obligations. But shareholders who attended the RCap AGM today wondered why RCap has not been able to repay debts of its lending businesses, despite receiving fund through stake sales.

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Ambani had earlier unsuccessfully tried to rope in a foreign partner in the general insurance business, a 100 per cent subsidiary of RCap. Later, he approached elder brother Mukesh Ambani's Reliance Industries and Piramal Group, offering 49 per cent in the business, media reported in April. At the AGM, Anil said that the life and general insurance businesses will be long term value creators in the transformed RCap. Gross direct premium of Reliance General Insurance increased by 3.64 per cent to Rs 6,191 crore in the last fiscal. The company stands at tenth position in terms of size. The first year premium of Reliance Nippon Life Insurance has increased by 16.53 per cent to Rs 1,067 crore, but the insurer is not in the list first 10 players, considering the size.

Rating agency CARE, in May, lowered rating of some of RCap's debt instruments to 'D', which means the debt facility is either in default or is expected to be so soon. "The rating revision takes into account the recent instance of rescheduling non-convertible debentures, and delays in servicing bank facilities by the company," said CARE. ICRA pointed out that repayment of two of RCap's subsidiaries, RCFL and RHFL, was going to be higher than their cash inflows in the next six months. This means subsidiaries will have to get capital from elsewhere or they will fail to meet their repayment obligations.

In the last financial year, RCap made a loss of Rs 1,454 crore, compared to a higher loss of Rs 4,556 crore in the previous year. RCap had a debt of Rs 46,400 crore at the end of March 2018.

RHFL and RCFL are in talks with its lenders to enter into an Inter Creditor Agreement (ICA) for resolution of its debt. The lending arms are expecting implementation of resolution plans by March 2020. "Since the previous financial year due to adverse developments in the financial sector all categories of lenders in India have put a near complete freeze on additional lending to NBFCs and Housing Finance Companies and have been insisting for reducing existing level of borrowings which has severely impacted the financial flexibility...," the company said in the first quarter result announcement. These developments have also adversely impacted RHFL and RCFL and led to liquidity mismatch, it said.

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