Mumbai: Proxy advisory firms have red-flagged Raymond Ltd’s proposed sale of prime property to its promoters, calling the deal grossly undervalued.
Raymond is planning to sell four duplex apartments at JK House in South Mumbai’s Breach Candy area to members of the promoter Singhania family.
In a report titled Raymond Ltd: The Complete Rip-Off, Institutional Investor Advisory Services (IiAS) India Ltd urged shareholders to reject the proposal when it comes up for voting at the company’s annual general meeting (AGM) on 5 June.
“Raymond Ltd’s own valuation report states that the residential property is valued at Rs1,17,000 per square foot (built up), putting a value on the entire transaction at Rs7.1 bn (Rs710 crore)," the report said. “Raymond, however, proposes to sell the property to the Singhania family factions for Rs9,200 per square foot of carpet area—over 90% discount to market rates."
IiAS said it estimated the opportunity loss from this transaction to Raymond shareholders at over Rs650 crore, “which is large in the context of Raymond Ltd’s own limited size: it aggregates over Rs100 per share".
IiAS added that Raymond had spent Rs270 crore, not including the cost of land, on rebuilding JK House. It recommended voting against the transaction as “the board has failed to protect the interests of the minority shareholders".
In an AGM notice filed on 15 May, Raymond had said it will seek shareholders’ approval to sell JK House. The company had bought the property in 1945 for “residence of its directors". It houses four duplex flats, the flagship Raymond’s store on the ground floor and a museum.
According to information in the AGM notice, in March 1994, Raymond leased JK House to Pashmina Holdings at Rs6,000 per flat per month, which sub-leased them a month later to four Singhania family members—Veenadevi Singhania, Vijaypat Singhania, Madhupati Singhania, and Akshaypat Singhania. All four are related to Gautam Singhania, chairman and managing director of Raymond. In November 2007, Raymond, Pashmina Holdings, and the four sub-lessees signed four separate tripartite agreements that allowed Raymond to redevelop the JK House. During the period of redevelopment, Raymond provided the family members alternative accommodation.
Between July 2016 and January 2017, three of the four tenants of JK House—Vijaypat, Akshaypat and Veenadevi—wrote to Raymond “exercising their option to purchase the new apartments". For this, two arbitration petitions were filed before the Bombay High Court by Akshaypat Singhania, along with Veenadevi Singhania and Anant Singhania. While fighting those petitions, Raymond has sought shareholders’ approval for the sales.
“This is a gross violation of the rules of corporate governance and the independent directors should be flagged," Shriram Subramanian, founder and managing director of proxy advisory firm InGovern said. “The question to ask is if there are similar transactions that have been disclosed to the shareholders," he said, adding that for a company that has an approximate market capitalization of Rs4,500 crore, Rs650 crore off the books is a sizeable amount.
However, analysts are not troubled by the report. “JK House is an old property and will hardly be visible in the books (of Raymond)," an analyst with an equities brokerage firm said, requesting anonymity. “Nobody valuing the firm will take the value of JK House in account. This report is more of a negative sentiment report because the loss they have reported is more of an opportunity cost than any impact on the actual financials of the company."
In a statement, Gautam Singhania said Raymond adheres to the “highest level" of corporate governance. “All relevant facts pertaining to this matter have been set out in the AGM notice for shareholders to take a considered view. Needless to say, the promoters, being interested parties, will abstain from voting on this matter."