What Reliance Capital Will Be Left With After Asset Sales

Reliance Capital Ltd. will lose businesses that generate 80 percent of its profit as the Anil Ambani group’s financial services unit sells assets to pare debt.

It has already announced the sale of its profitable asset management business to partner Nippon Life, and is in the process of selling its home and commercial finance unit.

Like the rest of businesses of the telecom-to-power conglomerate, the company came under pressure because of mounting debt. Its liquidity position deteriorated as borrowing costs rose after last September’s defaults by IL&FS group. Reliance Capital has since lost more than two-thirds of its market capitalisation and has tumbled 82 percent of its peak two years ago.

With debt coming up for repayment, CARE Ratings Ltd. downgraded the company’s ratings citing liquidity issues, defaults by subsidiaries and delay in asset sales. Reliance Capital plans to raise nearly Rs 14,000 crore by offloading assets, the rating agency said.

BloombergQuint looks at Reliance Capital’s businesses and what it will be left with after asset sales:

Asset Management: Mutual fund, pension fund, portfolio management, offshore fund and alternative investment fund.

Reliance Capital recently announced the sale of controlling stake in its asset management business to Nippon Life. The company will also sell the remaining holding to its partner, raking in a total of Rs 6,000 crore.

It has a one-year non-compete agreement with Nippon Life for the mutual fund business but can start portfolio management services and an alternative investment fund under Reliance Wealth Management.

Commercial And Home Finance: Affordable housing, mortgages, loans against property, lending to small businesses, business loans, infrastructure financing, loans for construction equipment, vehicle finance and retail lending.

Reliance Capital announced its plans to sell the controlling stake in this unit to a strategic partner. It will, however, remain a financial investor in the businesses.

Insurance: Life insurance, general insurance and health insurance.

The company owns 51 percent in the life insurance business, while Nippon Life holds 49 percent. Reliance Capital plans an initial public offering or a strategic stake sale for its general insurance business. Health Insurance business is still nascent and reported a loss in the last financial year.

Broking and distribution: Equities, commodities and derivatives, wealth management services, portfolio management services, financial products.

The broking and distribution business is small and didn’t contribute much to the revenue and profit in the year ended March 2018. Reliance Capital is yet to release its earnings for the 2018-19.

Other Businesses: Asset reconstruction, proprietary investments, institutional broking.

The ARC, institutional broking and proprietary investments are developing verticals with very less contribution to its profit.

In addition, the group is in the process of selling its investments in Prime Focus and a U.K.-based gaming company. It also agreed to sell its radio business to Music Broadcast Ltd. for Rs 1,200 crore.

Debt Picture

That sale of asset management business, according to a company statement, will help it pare debt by 33 percent.

The company’s standalone debt has fallen to Rs 18,000 crore as of March 2019, according to a senior executive who didn’t want to be identified as the information is not public yet. The consolidated debt, the person said, has fallen from Rs 49,000 crore as of September to Rs 42,000 crore in March.

Losing Units With 80% Of Profit

The sale of asset management, home and commercial finance businesses will take away units that contribute 80 percent of Reliance Capital’s consolidated profit.

The asset management business contributed 25.7 percent of the consolidated profit, while home and commercial finance unit accounted for 54.4 percent of its profitability.

Reliance Capital became a core investment company in 2018-19 from a non-bank lender. The strategic sales turn it into a holding company for insurance businesses with over 95 percent of the turnover and entire profit coming from it.

Reliance General Insurance is the sixth largest private insurer in the segment with a market share of 8.2 percent. It had an solvency margin of 164 percent as against regulatory requirement of 150 percent. Combined ratio stood at 120 percent—which means it spent Rs 120 in paying claims and expenses for every Rs 100 earned in premium.

Reliance Nippon Life Insurance had a market share of 1.1 as of December, making it the tenth largest player in the market. The company saw its persistency ratio— percentage of policies in force— rise to 75 percent while solvency ratio stood at 279 percent as against the regulatory requirement of 150 percent. Assets under management stood at Rs 20,200 crore.

Reliance Capital didn’t respond to BloombergQuint’s emailed queries.