Shivinder, Malvinder Singh want to sell some assets, but the timing isn’t right
The latest turn in the legal case involving Daiichi Sankyo’s Ranbaxy buy prevents asset sale by the Singh brothers, Shivinder and Malvinder, to cut mounting debt
Mumbai: Brothers Shivinder Singh and Malvinder Singh are serial entrepreneurs known for pulling off one of the best-timed exits in the annals of Indian business.
In 2008, they agreed to sell their family firm and India’s largest drugmaker, Ranbaxy Laboratories Ltd, to Japan’s Daiichi Sankyo Co. for $4.6 billion—just months before the US Food and Drug Administration (US FDA) banned imports at two of its Indian plants. That same year the US Department of Justice launched a probe, eventually resulting in a guilty plea by Ranbaxy and a $500 million fine for selling adulterated drugs. The Singh brothers were not named in the Ranbaxy probe.
Now, the timing for the two brothers seems far less opportune. Rising debt has them looking to sell assets, according to people familiar with the matter. But at the same time, the latest turn in a long running legal brawl with Daiichi Sankyo means they can’t change the status of their holdings without first getting permission from the Delhi high court. Any deal agreements could be complicated by the court case, which resumes in New Delhi this week, the people said.
In 2012, Daiichi filed a case with an International Court of Arbitration in Singapore accusing the Singhs of concealing and misrepresenting critical information about the US probes into Ranbaxy. In 2015, after years of regulatory scrutiny, Daiichi Sankyo sold its controlling stake in Ranbaxy to Sun Pharmaceutical Industries Ltd for $4.1 billion. Last year the Singapore tribunal awarded Daiichi about $500 million in damages and interest, Daiichi said in a statement at the time.
For their part, the Singhs say they were transparent about Ranbaxy’s regulatory problems at the time of the sale and are appealing the Singapore tribunal’s ruling, according to a spokesman. At the same time, they are also opposing Daiichi’s plea for enforcement of the award in the Delhi High Court.
Daiichi Sankyo would not comment on pending or ongoing litigation, William Henning, a spokesman for the firm, said in an email.
Given the size of the Singapore tribunal’s award, the Singh brothers could face significant financial impact if they lose the legal battle. Their main holding company RHC Holding Pvt. Ltd reported a net worth of about $1 billion in a 2015 audit available on the Ministry of Corporate Affairs website. The tribunal also named their other listed holding firm, Oscar Investments Ltd, which has a market value of $64 million and in which the Singhs had a 71% holding as of March 2016.
RHC had a $1.6 billion debt load after short-term borrowing increased 61% in the fiscal year ended March 2016, according to consolidated financial results available on the same regulatory website. The holding company had a loss of about $79 million that year, the results show.
India Ratings and Research, a credit ratings firm, assigns RHC its third highest rating, indicating it’s a borrower with a low degree of risk. But that assessment was predicated on management’s plan to “significantly reduce debt” through restructuring and divestments, after a rise in loans to its subsidiary companies lead to an increase in borrowing, according to a report from last September.
A spokesman for RHC said the company, through its subsidiaries, associates and other group companies has sufficient resources and assets to meet any of its obligations if need be.
RHC has not had any losses or seen substantial increases in borrowing, the spokesman said. The consolidated balance sheet does not represent the results of all the firms in the Singhs’ group of companies, though it does include results of Fortis Healthcare Ltd, RHC’s largest holding, and so gives a skewed picture of the Singhs’ finances, the spokesman, said in an email. He noted there has been no change to the company’s credit rating, which remains high.
The last two years of losses on RHC’s consolidated balance sheet and the increase in short-term borrowing coincides with two years of losses at Fortis Healthcare, India’s second largest private hospital chain. Standalone results—which leave out Fortis Healthcare and a number of other companies included in the consolidated financial statements—show RHC posted a $6.3 million profit in the 2016 fiscal year, and total debt increased 23% to about $649 million.
Any restructuring that occurs at the level of the Singh’s two largest operating companies, Fortis Healthcare and Religare Enterprises Ltd, won’t be impacted by the ongoing proceedings in the Delhi High Court because the court order is only directed at the holding companies, the spokesman said.
In recent months, the Singhs have entered talks with private equity giants KKR & Co., TPG and Bain Capital, along with Kuala Lumpur-based hospital operator IHH Healthcare Bhd, to explore an investment in Fortis Healthcare, people with knowledge of the matter said.
The Singh brothers have also been in discussions to sell a stake in pathology-lab chain SRL Ltd, which is being spun off as a separate listed company, the people said. They are seeking a valuation of about Rs6,200 crore, one of the people said. The brothers’ financial services conglomerate, Religare Enterprises, is separately negotiating the sale of a stake in Religare Health Insurance Co., as well as a controlling interest in small-business lender Religare Finvest Ltd, according to the people.
Representatives for Religare Enterprises, Bain, KKR and TPG declined to comment. IHH said it’s “always looking at various value accretive opportunities”, in an emailed statement, declining to comment on any specific transactions. The Singhs’ holding company, RHC, is evaluating various options to maximize value and Fortis Healthcare has recently received board approval to fund raise as much as Rs5,000 crore, the spokesman said.
RHC is set up as a financial institution designed to lend money to its subsidiary companies. Its strong credit rating is due to controlling stakes in Fortis Healthcare and Religare Enterprises, but the performances and credit profiles of its dozens of other ventures, ranging from charter flights to information technology to biofuels, are weak, according to India Ratings’ September report.
The possible losses RHC could face from debt it has taken on to make equity investments in its group companies has risen to 141% of its own equity in the last two financial years, according to the report.
“Beyond a certain number it may become difficult for the group to service all this debt,” said Ananda Bhoumik, chief analytical officer at India Ratings and Research. “It’s imperative that they try to reduce their leverage.”
RHC’s debt means the Singhs don’t have much choice but to drum up cash by selling off pieces of their best firms, according to Sweta Karia, an analyst who covers Fortis Healthcare’s stock at Batlivala & Karani Securities Private Ltd.
Last week, the court demanded the brothers turn over an audited account of their assets to satisfy Daiichi there would be enough to cover the arbitration award should they lose. That document was submitted, but was sealed.
“There is no way out but for this deal to go through,” Karia said of potential asset sales by the Singhs. Bloomberg