Mumbai: Anil Ambani-promoted Reliance Capital's (RCap) winning bidder Hinduja Group received the central bank's approval to acquire the financial services company, but the transaction cannot proceed until it is approved by the Department for Promotion of Industry and Internal Trade (DPIIT).

The Hindujas need DPIIT's approval because IIHL (IndusInd International Holdings), the acquisition vehicle, has 600 shareholders from the UAE, Singapore, Hong Kong, and Mauritius, with 39 shareholders residing in Hong Kong, which is classified as a land-border country under PN3 due to its special administrative relationship with China, said a source.

This has raised compliance questions under PN3, prompting deeper scrutiny by Indian regulators.

The approval is critical for the Hinduja Group, which is working round the clock to close the transaction by November 30 (the long stop date for the deal), failing which it will have to return the ₹3,000 crore raised from institutions, high-net-worth individuals (HNIs), ultra-HNIs, and family offices including Aditya Birla Capital, Tata Capital and 360 One, for the acquisition of RCap.

A Hinduja spokesperson did not respond to requests for comment.

The creditors had approved a bid by Hinduja Group in July 2023, following the Reserve Bank of India's intervention in November 2021 due to governance and debt default issues amounting to ₹40,000 crore. The Hinduja group has structured the ₹9,650 crore acquisition using both equity and debt financing.

"The Hinduja Group has received RBI's approval, but the acquisition now hinges on clearances from the court and DPIIT, especially when equity infusion is coming from an overseas entity of the group," said one investor involved in the transaction. "The prior approvals from the Insurance Regulatory and Development Authority of India (IRDAI) have expired and need renewal."

To meet its funding needs, the Hinduja Group plans to raise ₹7,300 crore via debt. Last month, IIHL, through its subsidiary Cyqure India, raised ₹3,000 crore by issuing non-convertible debentures (NCDs) with a 14.50% coupon rate. These NCDs, maturing in 2028 with a 42-month tenure, are zero-coupon, senior secured, listed, rated, and redeemable, aimed specifically at financing the acquisition.

The remaining ₹4,300 crore, expected to be raised through NCDs led by Barclays, is also contingent on final regulatory approvals, the sources said. The Cyqure-issued NCDs, structured as senior secured instruments, are under pressure with the looming November 30 deadline for the Hinduja group to expedite the necessary approvals, said two bond investors.

The RBI has approved the transfer of RCap's control to IIHL BFSI India and cleared the appointments of key directors with some conditions.