New Delhi: Financial services group Religare Enterprises Ltd intends to enter the banking business, taking advantage of the Rs10,000 crore that its owners will receive when they complete the sale of their stake in Ranbaxy Laboratories Ltd, India’s biggest drug maker, to a Japanese acquirer.
The family is also “open to evaluating private equity” as a new line of business as well, Malvinder Mohan Singh, chief executive and managing director, said in an interview. Last week, the Singhs announced the?sale?of their?stake?to Japan’s third largest drug firm, Daiichi Sankyo Co. Ltd in a deal that valued Ranbaxy at $8.5 billion (more than Rs36,450 crore) after equity dilution.
Singh, who will become executive chairman of Ranbaxy when the deal is completed by March next year, said Religare’s proposed entry into banking was a natural progression for the non-banking financial services (NBFC) firm.
“At some point of time, I think it is an integral part of a strategy for any financial services business to have a bank,” he said, declining to specify a time frame.
Religare Capital Markets Ltd, a brokerage and investment banking arm of Religare Enterprises, recently bought London investment banking firm Hichens, Harrison and Co. Plc for about Rs400 crore.
Religare Enterprises already has a venture capital unit under Religare Venture Capital Ltd.
New frontiers: Ranbaxy chief executive officer Malvinder Mohan Singh. ( Ramesh Pathania / Mint)
The banking ambitions of Singh, who runs the group’s business along with younger brother Shivinder Mohan Singh and Religare chief executive Sunil Godhwani, will, however, face several regulatory hurdles.
Banking rules in India don’t allow a company to hold more than a 10% stake in a bank and any change in this is unlikely in the near future. In the past, the Tata group had abandoned plans to pick up a minority stake in Axis Bank Ltd and billionaire businessman Anil Ambani has been unable to convert his Reliance Capital Ltd into a bank.
Earlier this decade, the Reserve Bank of India gave its approval to two banking entities: Yes Bank Ltd, started by Rana Kapoor, a finance professional, with backing from Rabobank NV, and Kotak Bank Ltd, an NBFC-turned-lender.
The central bank had said it would review the performance of these banks in due course and only after that would it consider issuing new licences.
Meanwhile, the Singh family is set to enter the life insurance business through Aegon Religare Life Insurance Co., a venture of Religare, Aegon Group from the Netherlands and media house Bennett, Coleman and Co. Ltd. A business insuring against fire, theft, and other non-life items could also be on the cards.
“We already have a joint venture with Aegon, third largest insurance company globally, which we are going to launch later this month. We are also studying non-life insurance...exploring various options,” said Singh. A stand-alone health insurance company is an option, he added, but still needs to “see if it is a financially viable proposition”.
Singh declined specific comment on the fate of Ranbaxy’s 50% stake in Nihon Pharmaceuticals Ltd, a Japanese joint venture with Nippon Chemipharma Ltd. The venture started as an alliance in 2002 with a 10% stake held by the Indian firm, a holding that was increased to half in 2005.
An investment banking insider, with knowledge of the Daiichi Sankyo-Ranbaxy deal, said Nippon’s 50% stake will be bought by Ranbaxy for less than $10 million.
“Both these companies (Daiichi Sankyo and Nippon) are active in Japan and the joint venture (remaining in its current form) would have been a conflict of interest,” said this person, who did not want to be identified.
Shares of Ranbaxy rose 2.41% to Rs581.45 a share on Tuesday, a day when the Bombay Stock Exchange’s benchmark Sensex index was 1.96% up. Shares of Religare Enterprises rose 0.61% to Rs402.90 a share, while Fortis Healthcare Ltd, the hospital chain controlled by the Singhs, saw its shares climb 0.79% to Rs82.45. Edited excerpts:
Will the Ranbaxy name change sometime in the future?
Ranbaxy will always remain Ranbaxy. Ranbaxy is an independent listed company, with its set of values, its own culture, an Indian-ness to it. We are an Indian multinational, we will remain so.
Ranbaxy has very substantial brand equity globally, which I believe will continue to strengthen and Ranbaxy, as an entity will remain the way it is. It will always remain a listed company and be that way in every single location where we are.
What kind of a presence will Daiichi Sankyo have on the Ranbaxy board?
After the deal is complete, the Ranbaxy board will be reconstituted and reduce from 15 (members) to 10. Daiichi Sankyo will have six members on the board and there will be four people from my side. I’ll be part of their global management team.
What assures you of your position in the company, given that you will have no equity stake? Is there a five-year period for you being in Ranbaxy?
There is a very clear understanding (with Daiichi Sankyo) of how the business will be run, of the purpose and rationale behind the deal. There is a common vision for Daiichi-Ranbaxy between their CEO and me.
At the same point of time, there was a clear imperative from their side when they said: “We don’t want Ranbaxy without you. We want it, if and only if you are going to continue to lead the company.” They would like to have me as long as possible.
There is a simple reason behind the five-year time frame that we have spoken of. As per Indian regulations, any executive director needs to go for shareholders’ approval for a term of five years and then that gets extended. But it is not a limiting period, it is not a maximum period and, it will keep getting extended as in the case of any other company.
Do you have the slightest bit of apprehension that Daiichi Sankyo could ask you to leave the company?
I have absolutely no fear. I’m doing this deal on my terms. We had an option with various organizations and we chose to go ahead with Daiichi Sankyo.
How has your compensation changed in the light of the deal?
Of course, it has changed. Compensation generally goes up. (Smiles.) The rest will get disclosed at the right time.
Can you tell us three things Ranbaxy could not do before and can do now?
First, we get a clear access to the entire innovative drugs basket of Daiichi Sankyo, which we can take to markets where it is not present. Today, Daiichi is present in 22 markets and Ranbaxy in over 150 countries.
Of these, only 10 markets are common to both. The reach and presence that we have now is far more global and stronger. At the same time, we will be able to leverage the synergies from the capabilities they have in terms of innovation, development and (drug) discovery, in our novel drug discovery research programme. Then, you have Daiichi’s capabilities in bio-similars in terms of their reach, global expertise in development and clinical trials.
You have said how Ranbaxy wants to become a research-driven company, but if your parent company is already in that segment, isn’t there a greater chance of Ranbaxy getting restrained to generics?
I’m seeing Daiichi Sankyo-Ranbaxy as one group. You need to look at it differently. Ranbaxy will be the entity which will drive the global generics business in the larger framework.
On the other hand, they have great regard for our new drug research capabilities. Going forward, companies will want to leverage Indian research far more. Ranbaxy will be that agent for Daiichi-Sankyo to leverage India. We will not be demerging our research work into a separate entity and it will continue as a division in the company.
Will you be looking at more buyouts in the domestic drug market?
(After the deal closes, together with our networth, we will have) about $3-4 billion of potential cash, which we can use for growth organically and inorganically. We will be in a stronger position to do more of it in India and outside. Personally, I have always believed the Indian market needs consolidation and I will continue to work on that.
(C.H. Unnikrishnan in Mumbai contributed to this story).