Reliance Group NBFCs Seek To Split Loan Book As Part Of Restructuring Plan

The two non-banking finance companies under the Anil Ambani-owned Reliance Group are proposing to split their loan book into two and seeking additional funds from lenders, in the hope of restarting operations, according to three people familiar with the discussions. Reliance Home Finance Ltd. and Reliance Commercial Finance Ltd. have submitted a fresh resolution plan to its consortium of banks, led by Bank of Baroda, these people said.

The first part of the proposal is to separate the loans given by the two NBFCs to group companies. The proposal suggests that these loans be held under an alternative investment fund structure, owned by the banks, one of the cited earlier said. These loans could be repaid when resolution plans of other Anil Ambani group companies like Reliance Infrastructure Ltd. and Reliance Power Ltd. are finalised, the proposal suggests.

According to the information available in their annual reports for 2018-19, Reliance Home Finance has extended Rs 8,000 crore out of the Rs 16,500 crore loan book to group companies, while Reliance Commercial Finance has extended Rs 4,800 crore out of the Rs 13,000 crore loan book.

Once the group loans are segregated out, the NBFCs propose to restart operations and are seeking an additional Rs 3000 crore in funds, the people quoted above said. Most of these are retail and small business loans and the business can attract fresh investors once it restarts lending, the proposal suggests, the people quoted above said.

Lenders, however, are reluctant to provide fresh financing to the NBFCs. They have rejected the proposal to extend further financing to the companies and have asked for changes in management at both non-bank lenders, two of the people cited earlier said. However, they’re willing to consider the AIF proposal as it helps in separating the stressed loans from the healthy loan book.

Queries emailed to Reliance Home Finance and Reliance Commercial Finance on Tuesday remained unanswered. Bank of Baroda is yet to respond to requests for comments.

Forensic Audit

The consortium of lenders has also asked Grant Thornton to continue with the forensic audit, as they want to be sure that the transactions with group companies aren’t called into question later, two of the people cited earlier said.

On Jan. 12, Reliance Home Finance informed the exchanges that the independent forensic audit initiated by the lenders was completed and that there were no adverse findings on fraud, embezzlement, siphoning off of funds or falsification of accounts in the audit report.

“...amount outstanding of Rs. 7,984 crore has almost entirely been utilised by the potential group entities only for making payments of principal repayment and interest to banks, financial institutions, NBFCs, NCD holders, etc. There is no adverse finding in this regard either, in the forensic audit report,” Reliance Home Finance said in its exchange filing.

Ravindra Sudhalkar, chief executive officer of Reliance Home Finance, resigned from the company’s board as an executive director, on Jan. 24. He continues to lead the company’s operations as the chief executive officer. Sachin Bora, who continues to be the chief operating officer of the housing financier, also resigned from the board.

Reliance Home Finance owes Rs 7,500 crore to banks and financial institutions in the form of loans and has additionally borrowed nearly Rs 5,400 crore through bonds, as of March 2019. Similarly, Reliance Commercial Finance owes Rs 8,000 crore to lenders and has raised Rs 2,300 crore though bonds, according to the last available annual report.

The outstanding dues have gone up since March 2019, according to the people cited earlier.

The Reliance Group has been under considerable stress over the last few years, with many flagship companies currently under restructuring. Reliance Communications Ltd. and Reliance Naval & Engineering Ltd. are both facing insolvency proceedings at the National Company Law Tribunal. Lenders to Reliance Communications are currently in the process of assessing bids submitted by Reliance Jio Infocomm Ltd. and UV Asset Reconstruction Company Ltd, to sell different parts of the company’s telecom business.