Reliance Captial to scale down financial services for debt reduction

Reliance Capital (RCap), which had expanded as a large financial conglomerate, will soon have to scale down in financial services, as it looks to monetise its assets to pare debt.

 

The company could look to re-build again, but before that it would have to go through a phase of restructuring. This period of transition could see the firm give up on some of its steady profit-generating businesses.

 

The company’s stand-alone net debt stands at Rs 18,000 crore. The asset monetisation plans that it has in place could potentially bring in over Rs 10,000 crore. 

 

Here is a look at the businesses that RCap could be left with after the restructuring:

 

Broking and wealth management (likely to be retained)

 

The broking business of RCap in the last financial year (FY18) generated revenues of Rs 350 crore and profit before tax of Rs 49 crore. The business also consists of wealth management, which saw robust growth in assets under management (AUM). The business saw AUM growth of 47 per cent to over Rs 6,000 crore as on March 31, 2018.

 

Distribution is the other part of the segment. The business involves distributing financial products such as MFs and insurance products.

 

PMS business (likely to be retained)

 

Scaling its portfolio management services business (PMS) can be one way for RCap to regain some footprint back in the investment space. While latest data was not available, the PMS business was advising or managing investments worth Rs 1.5 trillion as on October  31, 2017.

 

MF exit, may enter AIF

 

Exiting from Reliance Nippon Life AMC (RNAM) will lead to RCap losing out on a steady profit-making business.

 

The asset management company (AMC) clocked in net profit of Rs 486 crore in FY19. RNAM has a non-compete clause with Nippon Life, which means RCap cannot re-enter the MF business for at least a year after the stake sale.

 

However, RCap could consider entering the alternative investment fund (AIF) space. The AIF business is part of asset management, but not part of the non-compete clause.

 

Reliance General Insurance (part/full exit)

 

RCap is looking to monetise its 49 per cent stake in Reliance General Insurance, a wholly-owned subsidiary.

 

At the end of FY18, the business had a market share of 7.7 per cent. Its gross written premium (GWP) increased to Rs 5,122 crore last year, surging 28 per cent year-on-year (YoY).

 

GWP indicate how much premium the company gets to keep after assuming the risks. The business clocked profit before tax of Rs 165 crore last year, which was 27 per cent higher YoY.

 

According to the management, the stake in the general insurance arm could be monetised through either an initial public offering or a strategic investment. However, reports on Thursday suggested that talks for a full stake sale were also on with Hero Fincorp as one of the reported suitors. The second scenario will lead to RCap’s full exit.

 

Other insurance biz (likely to be retained)

 

RCap plans to keep hold of its stake in Reliance Nippon Life Insurance, in which it is a joint venture partner with 51 per cent stake.

 

The business has a shown steady growth. The life insurance business had 1.5 per cent market share at the end of the last financial year.

 

The total premium collected by the insurer last year was Rs 4,042 crore. Meanwhile, renewal premium for the company increased by 6 per cent to Rs 3,154 crore.

 

RCap also plans to hold onto its stake in Reliance Health Insurance.

 

Non-core: media and entertainment (likely exit)

 

RCap is planning to monetise its stake in Prime Focus. The radio business has also been put on the block. Recently, the firm agreed to sell its entire equity stake in the radio business — Reliance Broadcast Network — to Music Broadcast. Besides these, RCap is looking to sell its 30 per cent stake in Codeshare.

 

Lending business (selling stake, turning financial investor)

 

Reliance Commercial Finance (RCFL) is a wholly-owned subsidiary of RCap, while it holds 47.9 per cent stake in Reliance Home Finance (RHFL). The firm is looking to bring in strategic investors in both the businesses.

 

In an earlier interaction, the management had said that it was open to ceding management control in these businesses and becoming a financial investor.

 

RCFL caters to the financing needs of small and medium enterprises. Last year, disbursements stood at Rs 10,061 crore, rising 14 per cent YoY.

 

Meanwhile, RHFL saw its disbursements rise to Rs 8,695 crore; a jump of 19 per cent. The company’s profit before tax nearly doubled to Rs 272 crore in FY18. 

 

Business Plan

  • Insurance: RCap looks to monetise 49% stake in Reliance General Insurance. There has been no official comment on full stake sale, although reports suggest talks are on. It holds 51% stake in Reliance Nippon Life Insurance, at present, and has not announced any sale in life business
  • Asset management: Has initiated process of selling entire 42.8% stake to JV partner Nippon Life. Already brought stake down to 34.23% through offer for sale. The firm can’t enter MF business for a year due to non-compete agreement with Nippon
  • Loan business: Plans to monetise stake in Reliance Commercial Finance (100% subsidiary) and Reliance Home Finance, where it holds 47.9% stake
  • Other businesses: Will keep Reliance Securities, and the wealth management business. Could scale up PMS and may enter AIF segment


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