Why Gautam Singhania’s personal troubles should not be allowed to destroy shareholder wealth | Mint

Why Singhania’s personal woes shouldn't be allowed to destroy shareholder wealth

Gautam Singhania, chairman and managing director of Raymond Ltd. (AFP)
Gautam Singhania, chairman and managing director of Raymond Ltd. (AFP)

Summary

  • The development highlights regulatory gaps when it comes to feuds among promoters that have a direct bearing on the fortunes of publicly held companies. The role of the board of directors should also be spelt out clearly in such cases

It sounds straight out of a soap opera. A rich and powerful business family, old wealth, a flamboyant patriarch ousted by an estranged son, and simmering family tensions with accusations and counteraccusations being flung about through the media. 

Only, this particular soap opera is being played out in real life. And shareholders of the nearly century-old Raymond Limited, the world’s largest integrated fabric manufacturer and India’s largest producer of worsted fabric, are paying a heavy price as they watch this drama unfold.

Ever since Gautam Hari Singhania, the chairman and managing director of Raymond, took to social media platform X to announced that he was in the process of divorcing his wife of 24 years, Nawaz Modi Singhania, who’s also a promoter-director on the Raymond board, the company’s stock has been in freefall. 

Over Rs1,700 crore of shareholder wealth has already been wiped out after Singhania’s family troubles became public. Jittery shareholders have been exiting the stock fearing turmoil at the top, since Nawaz Modi Singhania has reportedly claimed 75% of Gautam Singhania’s personal wealth of over $1.3 billion for herself and their two daughters. 

Since a bulk of this wealth comes from the 49.11% shares in Raymond Ltd that he holds in his personal capacity and through associated companies, there are justifiable fears of forcible changes in leadership if the settlement goes through. 

From Rs1,889 on November 10–a day before a video went viral of Nawaz Modi Singhania being prevented from attending a Raymond Diwali function–the share dropped to Rs1,647 on Monday, down nearly 13% and more than 25% below the stock’s 52-week high. 

Gautam Singhania is no stranger to controversy linked to his personal life. There was a very public estrangement with his elder brother Madhupati in 1998. At the time, both were on the Raymond board and Madhupati was slated to get half the empire. However, the elder Singhania scion acrimoniously cut ties with the family and shifted to Singapore after Gautam was named sole heir. 

Then in 2015, Gautam Singhania’s father Vijaypat Singhania, then the chairman and managing director, transferred his entire stake to Gautam, in return, allegedly, for some settlements, which Vijaypat alleges were never honoured. (Vijaypat Singhania recently released a tell-all autobiography spelling out the details of the spat.)

While these developments did not cause lasting damage to the stock–mainly because there was clarity on management control at the company–this time around, it has been different due to the uncertainty caused by Nawaz Modi Singhania’s claims on the shareholding held by Gautam Singhania. 

The fact that this kind of destruction of investor wealth has been triggered by developments not directly connected to the company’s performance does not take away from the need for intervention by the board and regulatory authorities to reassure investors. 

Gautam Singhania has sought to assure the company’s staff that it would be “smooth functioning" and “business as usual" at India’s largest woolen fabric manufacturer.  That may have calmed some nerves internally, but public shareholders continue to be in the dark, as evidenced by the continuing freefall in the scrip’s price. 

Raymond is a publicly listed and traded company and majority-held by public shareholders. As such, it is the duty of the board of directors, in particular the independent directors–who have so far remained silent on the developments–to protect the interest of the public shareholders. At the very least, the board should provide clarity on management control and continuity, particularly since two board directors are directly involved in the dispute. 

Family fights can be hugely destructive to investor wealth. The acrimonious division of the Ambani empire, for instance, has wiped out lakhs of crores of shareholder wealth, besides resulting in huge losses to lenders, as the companies that went to Anil Ambani crashed and burned in the decade or so after the settlement. 

Indian shareholders have tended to be mute spectators to the loss of their wealth due to the actions of the promoters. From the Ambani feud to the split in the Nanda family that led to one of India’s top two-wheeler manufacturers shutting down, or even in the case of Cyrus Mistry’s controversial ouster from the Tata Group, which had major implications for India’s largest conglomerate, shareholders have not attempted to enforce any kind of resolution, while regulators and boards have also been hands off.

This needs to change. The Singhania development highlights regulatory gaps when it comes to feuds among promoters that have a direct bearing on the fortunes of publicly held companies. The role of the board of directors should be spelt out clearly in such cases. At the regulatory level, too, standard protocols need to be laid out. 

In this case, for instance, the Raymond board could advise Gautam Singhania to temporarily step aside till his dispute with his wife is sorted. Alternately, Gautam Singhania could be asked to seek shareholder endorsement for continuing in control via an EGM. Further inaction is only likely to cause further erosion of investor wealth.

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