Malvinder and Shivinder Singh in talks to sell Religare Finvest for Rs 6,000 crore

Industry: Banking, Financial services 2016-10-24

NEW DELHI | MUMBAI: Brothers Malvinder and Shivinder Singh have approached financial and strategic investors to sell Religare Finvest for as much as Rs 6,000 crore, said people aware of the matter. The non-banking finance company (NBFC) focusses on lending to small and medium-sized enterprises and is the mainstay of the Singhs’ publicly traded diversified financial services platform Religare Enterprises Ltd (REL).

Attempts to sell REL last year met with lukewarm interest and the promoters have started selling individual units such as the US-based fund management business and a life insurance joint venture in a change of strategy.

Finvest contributes 55% of its parent’s revenue and is a 99.99% subsidiary of REL, which denied any sale plans.

Malvinder and Shivinder Singh in talks to sell Religare Finvest for Rs 6,000 crore

The brothers, who face a $385 million arbitration penalty and have pledged much of their shareholding in group companies against loans, are also attempting to shore up liquidity through an independent discussion with KKR to obtain a Rs 2,500 crore structured credit facility as promoter financing, said the people cited above.

Feelers have been sent to Sunil Kant Munjal, chairman of Hero Corporate Services, on the NBFC business, which could be a strategic fit for the financial services aspirations of the Munjals. SK Munjal runs an insurance distribution business under the aegis of Hero Corporate Services and has been looking to diversify into newer areas after he ceased to be a promoter of Hero MotoCorp earlier this year.

Bulge-bracket PE firms like Blackstone, Baring Asia, TPG, and Everstone have also been approached, the sources said. Everstone already has a wholesale-focussed financial services platform IndoStar Capital Finance. Meetings have taken place with potential suitors and a global investment bank is advising Religare, said the people cited above.

With a book value of around Rs 2,700-2,900 crore, Finvest is expected to be valued at Rs 5,500-6,000 crore, analysts said. The NBFC platform had a loan book of about Rs 18,000 crore at the end of March.

REL said it’s not looking at selling any businesses. “This information is baseless and untrue,” a spokesperson said. A spokesperson for RHC Holdings, the holding company for the Singh brothers’ investments in both Religare and Fortis Healthcare, also denied knowledge of any sale plans.

SK Munjal, KKR, Baring Asia and Blackstone declined to comment. Emails sent to TPG Capital and Everstone did not get a response.

CASH CRUNCH

The Singhs were ordered by a Singapore arbitration court in May to pay $385 million in damages to Japan’s Daiichi Sankyo Co Ltd over the sale of Ranbaxy Laboratories for having allegedly withheld information.

The Singh brothers have pledged almost 86% of their promoter holding in REL as per stock exchange disclosures for the quarter ended September. A disclosure on October 13 indicated that of the promoters’ holding of 50.93% in the company, 44.24% is encumbered, partly against loans taken by group companies. Further, almost 80% of the Singh brothers’ holdings in Fortis Healthcare is also pledged, as per filings.

Fortis Healthcare Holdings and RHC Holdings, both of which act as holding companies for Fortis Healthcare Ltd, have also pledged some of their holdings in RWL Healthworld, the pharmacy retail business of the family and SRL, the diagnostics business, for loans recently. Lenders who hold shares as collateral include Axis Bank and ECL Finance.

Almost half of Finvest’s loan book is said to comprise loans against property. It provides home loans through subsidiary Religare Housing Development Finance Corp.

Finvest posted revenue of Rs 2,528 crore in the year to March and profit after tax of `295 crores. Its loan book grew 26% from the year earlier, while provisions for non-performing/restructured and standard assets tripled.

“NPAs (non-performing assets) in their corporate credit book and loan against property is a cause for concern,” said a potential suitor. “The business is also not growing as was expected before but parts of the book look interesting.”

The share of NBFCs in total credit is expected to rise to 18% by 2018-19 from 13 now, according to PwC. They will gain as India’s banks struggle with bad loans.

REL completed the divestment of its global asset management business in the US earlier this year through a sale of holdings in Northgate Capital and Landmark Partners, both of which it had acquired in 2010 through its arm Religare Global Asset Management.

It exited its 44% stake in the life insurance venture with Aegon last May.