The Fallout of Reliance Capital Being Referred to the NCLT

For those tracking Anil Ambani’s Reliance Group and Reliance Capital (RCL), the RBI superseding the company’s board did not come as a surprise. In the RBI’s own words, the action was necessitated “in view of the defaults by RCL in meeting the various payment obligations to its creditors and serious governance concerns which the Board has not been able to address effectively”.

It has been around two years since RCL defaulted on its payment obligations for the first time. The firm has borrowings in the form of secured and unsecured bonds, and term loans along with guarantees given to banks and financial institutions. As per its annual report for FY21, it has already defaulted on repayment of loans and borrowing totalling Rs 20,103 crore. The total financial liabilities stood at Rs 20,822 crore as on March 31, 2021. Though it claims to have consolidated assets worth nearly Rs 65,000 crore, markets don’t seem to be taking that number seriously. Shares of RCL have lost nearly 20 per cent in the past one month (till December 2) even as the benchmark S&P BSE Sensex lost only 4.7 per cent in the same period. It has been a roller-coaster ride for Reliance Capital shares, which touched a 52-week low of Rs 8.82 on December 2, 2020, before rising to a 52-week high of Rs 30.80 on June 24, 2021, only to fall again. It is currently hovering around Rs 15.

The impact of the RBI move could also be visible on the debt resolution process of Reliance Home Finance and Reliance Commercial Finance. RCL is not the first Anil Ambani firm to face serious problems. Reliance Infrastructure, Reliance Communications and Reliance Naval and Engineering have all had their share of major challenges. Anil Ambani has said he will monetise assets and pay off creditors, but it hasn’t happened yet. That has not stopped market participants from trading in Reliance Capital’s junk-rated bonds at times, on the buzz that some kind of repayment was on the anvil, even lifting the stock price earlier this year.

The RBI has put in place a three-member committee to advise RCL’s administrator—Nageswara Rao Y., former Executive Director of Bank of Maharashtra—to help them with the resolution process under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019.

Meanwhile, RCL said in a statement that it welcomes the RBI move and will “co-operate fully with the Administrator... for the expeditious resolution of its debt in the best interests of all stakeholders.... The complexity of litigation initiated by certain secured and unsecured lenders, resulting in the pendency of over 10 cases in various fora... has effectively stalled the resolution of the Company’s debt, despite its best efforts for the past over 2 years... The Company has no outstanding loans from banks and approx 95 per cent of its debt is in the form of debenture”.

On December 6, NCLT admitted the RBI application for initiating insolvency proceedings against the company.