Religare Enterprises Ltd said on Friday 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.
The board of the financial services firm has approved the restructuring plan and a management committee led by Sunil Godhwani, chairman and managing director of Religare Enterprises, will thrash out finer aspects of the proposal.
Godhwani told VCCircle that the three business lines are now mature enough to build their scale independently and that the proposed restructuring will also help Religare Enterprises factor out the ‘holding company discount’.
Public market investors tend to discount valuation of individual businesses under a holding company or those that are part of a conglomerate. Many diversified firms tend to demerge their businesses after they cross a threshold in terms of size for better value creation.
Another such diversified firm that is in the process of completing its demerger and listing spliced units is Analjit Singh’s Max India Ltd. The firm has also decided to separate into three separate listed firms.
Religare Enterprises is currently a non-operating holding company of separate financial services businesses. Apart from the three identified businesses, it had also built a large presence in the asset management business. It said in November last year that it would sell its majority stake in the Indian asset management joint venture--Religare Invesco Asset Management Company--to foreign partner Invesco Ltd.
Last year, Religare also sold its stake in its life insurance JV. Bennett, Coleman and Co Ltd, the Indian media conglomerate better known as the Times Group, acquired Religare’s stake in Aegon Religare Life Insurance Co Ltd while foreign partner Aegon hiked its holding to 49%.
But the company’s biggest asset sale involved its international alternative investment fund management business. It recently exited two US-based fund management businesses that had assets worth around $20 billion.
Religare counts Standard Chartered’s investment arm, IFC and US-based Customers Bancorp as institutional shareholders
“Our (public) investors wanted us to focus on the India market,” Godhwani said. “Our remaining three businesses that we would now focus on would capture the Indian growth opportunity story, be it SME lending and affordable housing finance, health insurance or brokerage.”
He said that the firm has frozen exit from as much as 90-95% of the asset management business and the remaining piece would be completed soon.
VCCircle had first reported on May 4 that Religare was exiting the remaining asset management business.
The proposed plan involves the lending subsidiary getting merged into the existing listed firm and becoming a lending arm. The other two units—health insurance and capital markets—will be spun out into separate listed firms.
The final plan is yet to be worked out but, typically, in such exercises existing shareholders of the listed firm get proportional shareholding in the new listed firms. Billionaire brothers Malvinder and Shivinder Singh currently own a 50.9% stake in Religare Enterprises. The firm also counts Standard Chartered’s investment arm, IFC—the private investment arm of the World Bank—and US-based Customers Bancorp as institutional shareholders.
Customers Bancorp is backed and led by Jay Sidhu, a US-based banker of Indian origin who led the rise of Sovereign Bancorp into one of the largest US regional banks before being ousted from the organisation. The firm runs Customers Bank in the US.
The lending business operates through Religare Finvest Ltd. It is positioned as a small and medium enterprise-focused lending platform with a total book size of Rs 16,310 crore as of 31 March 2016. It also houses an affordable housing finance business, which is operated through its subsidiary Religare Housing Finance Development Corporation Ltd and has a loan book size of Rs 820 crore. The lending business had previously raised private equity funding from Avigo Capital and Jacob Ballas.
Religare Health Insurance, one of the business to be spliced out, clocked a gross written premium of Rs 503.3 crore for the financial year 2015-16, reporting 82% growth. Besides Religare, the other shareholders in the business are Union Bank of India and Corporation Bank.
The other business to be floated as a listed firm is a brokerage where the retail capital markets business is operated through Religare Securities Ltd. It has over 8 lakh clients across both offline and online platforms. It offers broking services in around 500 cities in equity, currency and commodity (through its subsidiary Religare Commodities Ltd) as well as depository participant services. This piece of business also houses a wealth management and the mid-market focused institutional capital markets platform.
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