(RCap) bondholders are expected to recover just about half their investments in the stressed financier’s debt instruments, with a quick resolution under the stewardship of a central bank-appointed administrator potentially helping increase value of cash flow-generating RCap assets.
Some RCap investments in operating subsidiaries such as insurance, broking and asset reconstruction are likely to yield good value, half a dozen top industry executives dealing with RCap investments told ET. Large institutional investors, including LIC and Employee Provident Fund Organisation (EPFO), collectively own about ₹6,000 crore of RCap bonds. They are also expected to report considerable recoveries.
“Multiplicity of lender/investor opinion was causing hindrance for this debt resolution. It will now move in a time-bound manner,” said one of the persons cited above. Total outstanding bonds are estimated to be around ₹15,000 crore.
Vistra in Discussions
The quantum of debt held through these instruments was Rs 16,273.53 crore as of September 30, 2019. Vistra ITCL is the debenture trustee for the bonds. It is in discussion with all stakeholders after Monday’s Reserve Bank of India (RBI) mandate. These bonds are not frequently traded in the secondary market. In October, about Rs 490 crore worth of papers with five-year residual maturities changed hands in three transactions. They yielded above 50%. Two Singapore-based distressed investors were said to have lapped up those securities from local banks.
Bond yields and prices move in opposite directions. Higher yields point to lower net asset value of the underlying bonds.
Meanwhile, RCap said in a statement, “The company will cooperate fully with the administrator appointed by RBI for expeditious resolution of its debt in the best interests of stakeholders.” One of the top five mutual fund houses with estimated investments of Rs 130 crore has already side-pocketed its exposure to RCap. Side-pocketing is an exercise to segregate an asset and its corresponding liabilities. Any recovery from that exposure will now directly add to unitholders’ net asset value.
Reliance Capital is the fourth non-banking finance company (NBFC) to be taken to administrators under provisions of the Insolvency and Bankruptcy Code (IBC). “This proves that IBC for financial services is now a mainstream activity,” said a senior asset manager who manages thousands of crores of rupees.
In October last year, the committee of creditors had invited expressions of interest for all or part of RCap’s stake in key subsidiaries and assets. These included Reliance General Insurance, Reliance Nippon Life Insurance, Reliance Securities and Reliance Asset Reconstruction Company.
A group of local and global investors, including OakTree, JC Flower and some asset reconstruction companies, sought to own these assets. But RCap’s lenders and debt investors could not reach a conclusion due to widespread disagreements.
“Through a formal process, the RBI administrator may reach out to those old bidders who may still be interested due to regulatory intervention,” said the head of a financial services institution.
Some private equity investments by RCap, such as Paytm E-Commerce and Naffa Innovations Private, were also up for sale. The Paytm investment was made at a pretty early stage and is likely to yield substantial returns.
Separately, certain secured and unsecured lenders to RCap have filed more than 10 cases in various courts and the debt recovery tribunal. Litigation is believed to have delayed the resolution process.