Mumbai: For brothers Malvinder and Shivinder Singh who, in 2008, sold their stake in Ranbaxy Laboratories to Japanese pharma company Daiichi Sankyo for $4.1 billion in a blockbuster deal, life seems to have come full circle.
Flush with cash, the brothers, with the help of family friend Sunil Godhwani, built a financial services empire from the scratch. Eight years on, the family is selling its assets in the financial services company Religare Enterprises Ltd, of which Godhwani is chairman and managing director.
The asset sale comes at a time when the Singhs have been ordered by a Singapore arbitration tribunal to pay $385 million to Daiichi Sankyo, which has accused the brothers of misrepresenting certain facts about Ranbaxy when it acquired the company.
Godhwani, however, dismisses the conjecture that the sale is related to the Singapore tribunal order. “It’s all noise. Imagination is tax-free. Demerging the company was a logical thing to do and we started the process six months back,” he said, adding that Religare reorganizing into three businesses—finance, health insurance and capital markets—is not an indication that the group is preparing to sell these businesses.
In an interview, Godhwani explained the rationale behind the selling of assets, splitting the company and the road map. Edited excerpts:
What was the rationale behind splitting Religare into three firms—lending, health insurance and capital markets?
When we started Religare about 15 years back, it was a small broking firm. We gradually expanded to life insurance, then we got into the alternative asset management space and later spread ourselves into health insurance. So, over time, we became a diversified financial services conglomerate. In the last few years, we have seen that people like simplicity in businesses, but more than that they like businesses which are focused on India.
So, we took a call that let us simplify and focus on India, build businesses which are totally India focused and deploy capital within the country. In line with that decision, we have divested our entire stake in Northgate Capital and Landmark Partners. We have also exited our asset management joint venture Invesco, so we will be out of the entire global asset management space as such. We have also exited other small alternative assets businesses, or will be exiting all of those.
The holding company is at a discount of 30-40%. When you unlock the structure, the sum of parts is larger than the holding company. So, first we unlock value and second we simplify the structure—by letting people know that we are an India-focused story. We will be now focused around SME (small and medium enterprise) lending, health insurance and capital markets, which is a huge distribution platform, across 500 cities and 1,100 offices.
By when do you see yourself exiting from other small pieces of the alternative asset management business such as Cerestra-Edu-Infra fund and YourNest Angel Fund?
We will eventually exit from Cerestra, but it is not that there is a fire sale on right now. It is a very good business. We want to make sure that they are housed in a great place, so when we find a great partner, we will exit the business.
We are not shutting down these businesses; we will sustain them till the management grows up to maintain it or somebody shows interest to partner and then take it over. YourNest will also be exited eventually. There is no point hanging in these spaces, as we are not going to be focusing there.
Will you look at raising money for the split entities? What are the plans around raising growth capital for these businesses?
Each of these businesses today is adequately capitalized for the next two years of growth. But you always are open to finding a partner that puts in that extra 10% of capital so that you can grow that extra delta. Already, people have become interested; now that the operating company is listed, they have the liquidity to come in.
We have IFC as our investor in the holding company, while Jacob Ballas Capital and Siguler Guff are in the NBFC (non-banking finance company) business and Union Bank and Corporation Bank are in health insurance. With the demerger and listing, they have the liquidity; they may choose to exit or not, but we have abided by our commitment to give the liquidity. However, we are not sitting short of capital and there is no need for capital right now.
What are the medium-term targets for these businesses going ahead?
The book size of the NBFC business is around Rs.18,000 crore; the target is to take it to Rs.30,000 crore in (the) next two-three years. In health insurance, we are targeting to double the size in (the) next two-three years. The business starts breaking even in about 18 months.
Are there any other smaller businesses within these three businesses that would look at exiting/divesting, say investment banking within Religare Capital Markets?
At this point, we are looking to consolidate and list these businesses. There’s investment banking, wealth management. We can look at partners in these areas. We have a lot of working partnerships in investment banking—some of the them can convert to equity partnerships down the line; we are open to that.
When do you plan to list these businesses?
We have got an in-principle approval of the board, a committee has been formed, which is going through legal, regulatory and other requirements. We will probably call a board meeting in the next 45 days for the final approval, then file for scheme of arrangement with high court, which will take three-six months. We have get approvals from Sebi, IRDA and others. So, by the time the actual listing happens, it should be around 12 months. Our intent is to complete it by 31 March or April next year.
You were trying to raise money for Religare at the holding level, but that did not work out. Why?
When we tried to raise money for Religare, the logic was to institutionalize the shareholding. People showed interest, but the way it was happening—an investor, say, was interested in the NBFC but not in the other two businesses, then there were some investors who were interested in just the health insurance business—it became a complex situation. It was not that there was no interest.
Another challenge was that no one was looking at RGAM (Religare Global Asset Management) because people said that they do not want to come in an Indian company to invest in a US asset.
The process did not fail, it became complex, because of the varying needs of investors. So we stopped the process, we cooled it for three months and then we got into selling RGAM.
There is a strong view in the market that the entire demerger and RGAM sale is happening because the family is in debt and are preparing for the ongoing arbitration in the Ranbaxy case.
That is all noise. The demerger is logical. If it was based on the Ranbaxy matter, then we would have decided on the demerger around one month ago only. These things take six-eight months of planning. We signed up our bankers and lawyers about eight months back.
Ranbaxy (the ongoing arbitration case in Singapore) is a promoter issue. It’s a long-drawn case. For the operating companies, there is zero implication. I don’t think any money is going to get paid. It will be fought, legal people will decide. Both sides have their viewpoints.
Every large business in the country is in debt. Not everyone is selling out their businesses (because of debt).
The Singh family sold Ranbaxy and now RGAM, both large profitable businesses. Is selling that easy?
I believe that you need to differentiate between possession and obsession. Promoters tend to get obsessed with equity. It is a possession. Our promoters have always done things that are right for the businesses. From a Ranbaxy perspective, we clearly felt that the right thing for Ranbaxy was to exit the business. The kind of capital that was required to grow the business further, the litigations around the business, they were not worth our time.
We are not traders. We like to build businesses. We are committed to healthcare (Fortis) and financial services. But you have to be practical because each business has its pluses and minuses and you have to understand what your strengths are and what is that you really want to do. They have been very practical about these decisions.
Selling spree: a look at key stake sales by Religare in the past one year
1. April 2016: Sells stake in US-based Landmark Partners focused on private equity and real estate secondaries markets. Assets under management (AUM) of $15.1 billion housed under RGAM.
2. April 2016: Sells stake in US-based private equity and venture capital management arm Northgate Capital. AUM of $4.8 billion housed under RGAM.
3. November 2015: Sells its majority stake in the Indian asset management joint venture to its foreign partner Invesco Ltd.
4. May 2015: Sells stake in life insurance JV Aegon Religare.