Religare Enterprises Rebounds After Hitting Lifetime Low On Debt Repayment Concerns
Religare Enterprises denied reports that lenders have sold shares pledged by promoters.
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Religare Enterprises Ltd., 50.89 percent owned by Malvinder Singh and Shivinder Singh, snapped an eight-day losing streak as the company tried to allay fears over its debt.
Shares fell the maximum 10 percent in morning trades to a lifetime low of Rs 92.15 before recouping all the losses to close 1.35 percent higher. The rebound came even as the company, in an emailed reply to BloombergQuint, denied reports that lenders have sold shares pledged by promoters. Nearly 88 percent of the promoter holding is pledged.
Religare Enterprises lost 40 percent of its market value in the last eight trading sessions. Its circuit breaker, the most it can gain or fall in a day, was halved to 10 percent on Tuesday to curb extreme price fluctuations, as the stock fell amid worries about the company’s ability to repay debt using existing cash flows.
Rating agency India Ratings & Research had said in June that the company would not be able to meet its immediate debt repayment–Rs 155 crore by month-end–through cash flows. Instead, due to a temporary shortfall of cash, it would need to raise funds via short-term bank loans or commercial papers for immediate payouts, the rating agency said in its note.
“Religare Enterprises is a holding company, which is largely dependent on dividend payments by its operational subsidiary Religare Finvest,” said Siddharth Goel, associate director at India Ratings. “In 2016-17, because of credit losses, the company was unable to pay a dividend. In fact, Religare Enterprises had to infuse capital into Religare Finvest.”
This led to a shortfall of cash on the books of Religare Enterprises, prompting India Ratings to send out the warning note. The agency, however, affirmed its credit rating on the company as “AA-”, which implies little or no chance of a default.
Explaining the dichotomy, Goel said 82 percent of Religare Enterprises’ standalone debt worth Rs 1,100 crore is owed to its subsidiaries. Two of its arms, RGAM Investment Advisers and Religare Securities, sold their domestic and global asset management businesses, respectively, said Goel. The proceeds of the deals were transferred by the subsidiaries to the holding company in the form of loans.
With only 18 percent of the outstanding debt owed to external lenders, the company has ample room to raise additional debt to pay off existing obligations, said Goel.
Religare Enterprises is working on a deal to merge some of its subsidiaries into itself–a move that could help pare debt.
“Religare group is in the restructuring mode,” India Ratings said in its note in June. “This involves selling off stakes in businesses and announcements relating to the merger of certain subsidiaries into REL (Religare Enterprises). This would simplify the corporate structure and knock-off the inter-group liabilities.”
India Ratings continues to review the credit rating of Religare Enterprises on a regular basis, and material events, if any, will be communicated, said Prakash Agarwal, director and head of financial institutions at India Ratings & Research.