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Exclusive: Global PE firms eye Religare’s NBFC biz

24 October, 2016

Religare Enterprises Ltd that has seen through a series of business divestments in the past year and announced a three-way demerger of its remaining operations, has received interest from few private equity firms for its lending business, two persons privy to the development told VCCircle.

The lending business of the public-listed firm is housed under Religare Finvest Ltd (RFL), a non-banking finance company (NBFC) that focuses on small and medium enterprises (SMEs). RFL in turn also owns 87.5% stake in Religare Housing Development Finance Corporation Ltd (RHDFCL) that focuses on the affordable housing segment.

Religare Enterprises, which is controlled by billionaire brothers Malvinder and Shivinder Singh, has evinced interest from TPG besides Actis and Standard Chartered Private Equity.

One of the persons cited earlier said that JPMorgan is involved as an investment banker for the proposed transaction.

Given the size of Religare Finvest’s loan book and earnings, it could be valued around $1 billion or more. 

When contacted by VCCircle, a spokesperson for Religare Enterprises said, “This information is totally baseless and untrue. Religare Enterprises (REL) is not looking to sell any of its key operating businesses. As a responsible media platform, we would expect and urge you not to believe in and further propagate such baseless rumors. Also put on record that we reserve the right to appropriate and strong legal recourses if any such damaging and baseless story is reported.”

A spokeswoman for TPG Capital said, “TPG would not like to respond to speculation about our interest in the said company.”

Separate email queries sent to the spokespersons for Actis, Standard Chartered and JPMorgan did not elicit any response till the time of publishing this report.

Lending biz

Religare Finvest that is focused on providing debt capital to the SME segment reported a disbursement of Rs 9,164 crore for the year ended 31 March 2016. It reported a growth of 26% on total loans and advances of Rs 18,118 crore as of March 2016 and revenues of Rs 2528 crore and a profit after tax of Rs 295 crore, indicating growth of 17% and 15%, respectively, over the previous financial year. It has a balance sheet size of Rs 21,049 crore and capital adequacy (CRAR) of 16.7% as on March 31, 2016.

At present, it offers unsecured and secured SME loans, short term trade finance, capital market loans and individual loans. It has 83% of its exposure from secured asset finance while the rest is contributed by unsecured and capital market lending, according to a September 2016 presentation by the company.

There are no directly comparable peers in the public listed space given its leaning on SME finance. While some listed NBFCs such as Shriram Transport Finance and Mahindra & Mahindra Financial Services have reasonably sized SME loans, they are strong in one or the other verticals like transportation, rural finance and so on.

Other comparable peers are part of listed firms like IIFL Finance. In July, UK’s CDC said it will pick 15% stake in IIFL Finance in a deal that valued it at $1 billion. IIFL Finance is the closest competitor to Religare Finvest by size.

Given the price-earnings multiple of listed NBFCs including consumer focused lenders like Capital First, Religare Finvest would be valued well over Rs 6,000 crore.

The company raised Rs 150 crore and Rs 200 crore from Avigo Investments and Jacobs Ballas India Fund, respectively, through compulsory convertible preference shares in FY12.

The housing finance arm had total loans outstanding of Rs 829 crore as on 31 March 2016 and expanded its network to 30 branches last year from 14 branches at the end of the previous financial year.

Religare Finvest also has a joint venture with Equifax Inc and six other Indian financial institutions to run Equifax Credit Information Services Pvt. Ltd.

It had previously acquired Citigroup India’s mortgage portfolio, with a book size of Rs 470 crore and snapped Maharishi Housing Development Finance Corporation, which is now Religare Housing Development Finance Corporation. 

In the fray

One of the persons privy to the development said that each of the private equity investors is interested in only some part of the portfolio and it is possible that more than one private equity firm could be buying the asset.

A person who belongs to the investment banking fraternity said the group has been looking to sell its lending business for a long time. “Over the years the company has held discussions with investors including one of the largest PE groups globally to divest its lending assets. However, discussions did not progress along the expected lines. Now, they are talking to TPG in fresh bid to sell it,” he added.

TPG is seen as a stronger contender for the potential deal. It had previously sealed some successful investments and exits in the financial services domain in the country including Shriram Transport Finance and Shriram City Union Finance. Both were minority stake transactions.

But TPG has been looking at buyout transactions in the sector. It is one of the bidders to buy ICICI Home Finance, the housing finance arm of the country’s top private lender. Early this year, it led a $150 million round in the country’s top microfinance firm by assets Janalakshmi Financial.

TPG has also sealed two control deals in the healthcare space.

Meanwhile, Actis, an emerging markets focused PE firm, has done some control deals in the past. However, it has not been able to raise its next India-focused PE fund having hit the road almost four years ago. It had last year floated a platform for renewable energy assets.

Standard Chartered Private Equity is not known to do control transactions in India. But it has existing relationship with the group. It is an existing shareholder in the group’s hospital firm Fortis Healthcare and an investment arm of Standard Chartered is also a shareholder of Religare Enterprises.

Religare’s strategy

In May, Religare Enterprises said it has decided to splice itself into three separate listed firms engaged in lending, health insurance and capital markets, a move that would allow the businesses to raise money independently and chart their own course.

Although the terms of the proposed demerger is still in the works, typically, in such exercises existing shareholders of the listed firm get proportional shareholding in the new listed firms.

Singh brothers currently own a 50.93% stake in Religare Enterprises. The firm also counts IFC—the private investment arm of the World Bank—and US-based Customers Bancorp as institutional shareholders.

Interestingly, two such business demergers by diversified business groups were coupled with private equity and M&A deals. Last year, Avantha Group firm Crompton Greaves spliced out its consumer products business into a separate listed firm and in a parallel deal, the Gautam Thapar-promoted group sold its stake in the demerged business to PE firm Advent and Singapore state investment firm Temasek.

More recently, Analjit Singh’s Max Group that completed a three-way demerger struck a deal where one of the firms—Max Financial Services Ltd—and mortgage lender HDFC decided to merge their life insurance arms to create the largest private life insurer in the country .

It is to be seen if Religare promoters wait for a demerger to sell their own stake or go ahead with the proposed deal to sell the lending business outright.

They have been known to make swift business decisions in the past changing direction within a span of three-five years.

The Singh brothers, who had earlier sold the group flagship Ranbaxy to Japan’s Daiichi Sankyo (last year Sun Pharma acquired Ranbaxy), had a few years ago bought a stake in Singapore’s Parkway hospital chain and then went on an aggressive Asia-Pacific acquisition spree in the healthcare services business. But they sold almost all these assets within a short period to focus on the domestic market.

They have also changed track for their diagnostics business. Having filed for IPO, they went on to scrap the plan and got their public-listed hospital firm Fortis to instead buy their own stake in SRL Ltd. SRL is now proposed to be spun out as a separate listed firm.

In the financial service space, after building a huge global alternative investments platform starting in 2010-11, with assets of around $20 billion, Religare divested virtually all of the asset management business early this year.

In April, Religare said it is selling its US-based private equity and venture capital management arm Northgate Capital to London- and Dubai-based private investment firm The Capital Partnership (TCP). The same month it also exited Landmark Partners, another US-headquartered private equity fund house.

In August, Religare Enterprises sold its real estate private equity arm, Cerestra Advisors Ltd, to TCP for an undisclosed amount.

Around the same time, Baring Asia was in late stage talks to acquire Religare Credit Advisors LLP (RCA), the private debt platform of Religare Global Asset Management that would allow Baring Asia to expand its India presence and add new lines of business.

Religare has exited several businesses last year as well. Last November, it announced it would sell its majority stake in the Indian asset management joint venture—Religare Invesco Asset Management Company—to foreign partner Invesco Ltd. It also sold its stake in its life insurance JV to Bennett, Coleman and Co Ltd, the media conglomerate better known as the Times Group, and foreign partner Aegon.

Late Friday, Religare Enterprises said Sunil Godhwani, who was appointed CEO of the firm just last month, stepped down from his position and will now be group president of the private holding arm of the Singh brothers. Godhwani, a close confidante of the promoters, was previously serving as the chairman and managing director of Religare Enterprises.

This article has been updated with some additional information related to the proposed deal.

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Exclusive: Global PE firms eye Religare’s NBFC biz

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