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Authum Investments and Infrastructure has successfully completed the Rs 3,351 crore acquisition of Reliance Home Finance Ltd (RHFL), a former Anil Ambani company, marking the largest resolution of a debt-ridden non-banking finance company (NBFC) outside bankruptcy courts. RHFL's creditors, led by Bank of Baroda, were owed a total of Rs 11,540 crore. Authum was announced as the winning bidder in June 2021.
The transaction faced delays due to objections from the Securities and Exchange Board of India (SEBI) regarding the voting process and a stay on the distribution of funds from a case filed by the Shapoorji Pallonji Group. Despite these setbacks, lenders benefited from the delay, as loan recoveries in RHFL increased from Rs 1,600 crore to over Rs 3,000 crore. As a result, lenders' recoveries were boosted.
Authum has also increased its investment in RHFL to Rs 351 crore. Consequently, secured creditors have recovered approximately 29% of their dues, up from the 26% initially planned. Authum has set aside funds for dissenting creditors and other company liabilities. The Supreme Court allowed the plan to proceed while giving dissenting debenture holders the option to accept the resolution plan's terms or seek other legal remedies to recover their dues.
The RHFL resolution is the largest outside the National Company Law Tribunal (NCLT), surpassing Altico Capital's Rs 4,000 crore debt settled in March 2020 and Religare Finvest's Rs 5,344 crore debt settled in March this year.
A total of 30 banks led by Bank of Baroda, 40 institutional investors including mutual funds, and 20,000 retail investors were approved creditors of RHFL. Small investors with investments below Rs 5 lakh received 100% of their principal amount, whereas those with investments above this threshold received 23% according to the approved plan.
The successful resolution of RHFL highlights the potential for out-of-court settlements to be a viable option for distressed NBFCs, providing an alternative to the often time-consuming and costly bankruptcy process. The deal also showcases Authum Investments' commitment to the Indian financial sector, as the firm had previously completed the takeover of another Anil Ambani company, Reliance Commercial Finance, in October.
BoB Capital Markets, the investment banking arm of Bank of Baroda, and consultancy firm EY served as process advisors to lenders, while I Sagar Associates acted as the legal advisor. With the completion of the RHFL deal, lenders now shift their focus to the ongoing challenges in attracting bidders for the holding of bankrupt Reliance Capital. As reported earlier this week, lenders fear that loan recovery could fall below the liquidation value of Rs 12,500-13,000 crore for the financial services company since bidders are reluctant to improve their offers.
In conclusion, Authum Investments' completion of the Rs 3,351 crore acquisition of RHFL signifies a major resolution for debt laden NBFCs outside of bankruptcy courts. The deal benefits lenders, allowing them to recover a significant portion of their dues, while also providing relief for investors and the overall market. The success of this transaction may encourage other similar resolutions in the future, offering a more efficient and effective approach to addressing the challenges faced by struggling NBFCs.
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