The insurance regulator may conduct a “fit and proper” test on the Indian fund used by US-based Oaktree Capital to hold a 51% stake in Dewan Housing Finance Corp. Ltd’s life insurance business if its offer to acquire the bankrupt home financier is accepted, two people directly aware of the development said.
Oaktree has proposed to hold DHFL’s stake in Pramerica Life Insurance through an India incorporated alternative investment fund (AIF) to comply with foreign direct investment (FDI) rules, which restrict foreign ownership in insurers to 49%.
DHFL’s foreign partner Pramerica ZZZZ already owns the maximum permissible stake.
“Irdai wants the AIF to be ‘fit and proper’, which will include having a substantial capital base and a proven track record in running financial services businesses directly or indirectly,” one of the two people said, requesting anonymity. “Irdai is not in favour of granting an approval to any newly formed AIF with a small capital base created just for regulatory compliance.”
The committee of creditors (CoC) for DHFL, which is overseeing the sale of the mortgage lender, is currently in talks with top bidders Oaktree and Piramal Capital.
DHFL owes ₹87,000 crore to banks and bondholders, including State Bank of India, Life Insurance Corp. of India, Union Bank of India and many other foreign and domestic lenders.
However, the sale of the insurance business, where FDI rules apply, is a crucial part of the overall plan of the lenders to recover a part of their outstanding dues.
Irdai chairman Subhash Chandra Khuntia didn’t respond to a query sent on Saturday. A Hong Kong-based spokesperson for Oaktree declined to comment.
While Piramal has offered to buy out Pramerica Life Insurance for ₹1,000 crore, Oaktree’s bid suggests that it will rope in an AIF and will infuse ₹1,000 into the fund, which, in turn, will own DHFL Investments Ltd’s 51% stake in the insurance firm. “While Oaktree’s proposal may be legally sound, Irdai is keen to evaluate whether it will be in the best interests of policyholders,” said the second person cited above.
“Initially, the lenders to DHFL were looking for a separate buyer for DHFL’s Pramerica unit. But so far neither any insurer nor any corporate group has shown any interest to buy DHFL Pramerica,” said the first person.
The second person said Oaktree is in talks with at least four AIFs for holding the DHFL Pramerica insurance business.
DHFL’S lenders are currently voting to select the winning bid. The decision to go with Oaktree or Piramal will be completed by 14 January.
On 28 December, Mint reported that Piramal raised its total offer commitment for DHFL to ₹38,250 crore, improving on Oaktree’s commitment of ₹36,400 crore.
Piramal and Oaktree are engaged in an intense bidding war to take control of DHFL, which has seen its asset quality improve as India lifted lockdown curbs.