Religare promoters to hike stake, trigger open offer

Malvinder Mohan Singh and Shivinder Mohan Singh, the promoters of financial services firm Religare Enterprises, will spend Rs 857 crore to acquire another 8 per cent in the company through a preferential allotment of shares and purchases from the open market.

The company’s board cleared the stake acquisition on Tuesday, which will increase promoter holding from the current 57.1 per cent to 65.79 per cent.

Under existing rules, preferential allotment to promoters that hold over 55 per cent in a company triggers an open offer for a further 20 per cent stake. The move comes just before the Securities and Exchange Board of India implements a new Takeover Code, which is expected to mandate an open offer for acquisition of all the shares.

A successful open offer will result in public holding in Religare falling below 25 per cent, the minimum public float required under newly-framed government rules. However, company executives said the promoters would have a six-month window to bring the shareholding within regulatory norms.

The announcement buoyed Religare shares, which closed 8.42 per cent higher at Rs 500.80 on the Bombay Stock Exchange, while the benchmark Sensex fell by 0.53 per cent.

In intra-day trade, it touched a 52-week high of Rs 518.50.

The move to increase their shareholding in Religare comes weeks after the promoters decided to drop plans to invest personal funds to acquire a majority stake in leading Singapore healthcare chain Parkway Holdings. The brothers, who sold their entire stake in India’s largest pharmaceutical company, Ranbaxy, two years ago, are focusing on two verticals: financial services and healthcare through Religare and Fortis Healthcare, respectively.

Religare runs insurance ventures, an asset management company, equity and commodities trading outfits, besides offers loans though a non-banking finance company. It also has plans to enter the banking space when Reserve Bank of India issues fresh licences. When contacted on the phone, Malvinder said: “We have clear focus on both financial services and healthcare. In the case of financial services (on Tuesday’s announcement) is one step ahead.” He added that the development would not have any impact on their growth plans in the healthcare sector.

“The growth strategy for our healthcare business remains the same, even though the vehicle of growth (Parkway) has changed,” Malvinder said.

The promoters plan to spend Rs 250 crore on the preferential allotment of shares, which accounts for 4.014 per cent, and an equal amount on warrants convertible into equity shares. Details of the warrants were not disclosed by the company in a stock exchange filing. They also plan to spend Rs 357 crore on open market purchases of another 5.58 percent stake, a Religare statement said.

While the increase in promoter shareholding from the current level will take place soon, the success of the open offer depends on the offer price, analysts said. “The open offer price will indicate how keen the promoters are to increase their holding beyond 65.79 per cent,” said Jagannadham Thunuguntla, equity head at SMC Capital.

According to Thunuguntla, an increased promoter stake will give Religare leeway to raise further funds if required through a QIP or FCCBs, as the promoters will continue to have controlling stake even after dilution.

While company officials said merchant bankers were working on the open offer pricing details, industry analysts estimate the average price to be around Rs 450 a share.