True North’s Insurance Bet In Jeopardy As Religare Seeks Higher Valuation

Nine months after Malvinder Singh and Shivinder Singh-promoted Religare Enterprises Ltd. agreed to sell a majority stake in its health insurance business to private equity firm True North, both sides are at loggerheads and are seeking regulatory intervention.

Religare Enterprises wrote to the Insurance Regulatory and Development Authority of India to put the sale on hold. True North also wrote to the regulator seeking its approval to close the deal at the earliest. BloombergQuint reviewed copies of both the letters.

The primary reason for this sudden difference in opinion may have stemmed from the change in promoter shareholding. The Singh brothers-led promoter group's holding in Religare Enterprises has come down from 51 percent as on March 31 to just 11.69 percent as on Dec. 11, according to data filed with stock exchanges.

Other major shareholders include Resilient India Growth Fund with 9.88 percent, Axis Bank Ltd. with 8.9 percent and International Finance Corporation with 7.18 percent.

Looking For Higher Valuation

Religare Enterprises had in April announced the sale of Religare Health Insurance to a consortium of investors led by True North and other investors such as Gaurav Dalmia and Faering Capital, according to stock exchange filings.

The deal was struck at a Rs 1,300 crore valuation for the insurance business and the parent would have received close to Rs 1,040 crore for its nearly 80 percent stake.

Regulatory approval took time as there were no specific guidelines enabling private equity investors to become promoters of insurance companies, and this deal would result in just that. After more than six months, the IRDAI, on Dec. 5, released guidelines on how private equity investors could be promoters and control Indian insurance companies. That paved the way for the closure of the Religare-True North transaction.

Except that around the same time Religare Enterprises wrote to the IRDAI asking that the application for the sale of stake in its health insurance firm be put on hold. The letter stated the grounds for this as...

• Objection by Daiichi Sankyo to the sale of shares of health insurance arm by Religare Enterprises, and it could be contemptuous to a court order.
• The transaction was approved by the erstwhile management and there has been a change in shareholding at Religare Enterprises.
• International Finance Corporation is yet to give its consent to the transaction.

Religare Enterprises Chairman S Lakshminarayanan, who spoke to BloombergQuint over the phone, confirmed writing to the IRDAI to block the deal as it now wants a higher valuation.

“Although we have written to the regulator, we will be honouring our commitment to close it (the deal) by Jan. 6, 2018”, Lakshminarayanan said.

Cash-Strapped?

Soon after Religare sent its letter to the IRDAI, True North asked the company to withdraw it. Failing which, the private equity firm wrote to the regulator that Religare's grounds for objection were “misleading”.

The letter, authored by Metaffinity Private Ltd. — the investment arm of True North, said, “The alleged letter to the IRDAI by the executive chairman of REL is completely misleading and incorrect and we would humbly request that the IRDAI should not take into consideration any such letter...”

True North said that the health insurance arm of Religare is cash-strapped and it is in the interest of policyholders that the business is sold to the firm. “We are committed to providing this capital upon the closure of the transaction,” True North wrote. The solvency ratio for the Religare Health Insurance is close to 1.5, very close to the minimum capital stipulated by the regulator.

In a statement to BloombergQuint, True North said it would pursue closure of the transaction. “We have a legally binding and enforceable share purchase contract.”

The deal now hinges on the IRDAI's decision. BloombergQuint's emailed queries to the regulator remained unanswered.