Proxy advisory firm InGovern has recommended shareholders of Religare Enterprises (REL) to vote against a resolution proposing an investment of ₹15 crore in MIC Investment Web Aggregator, a wholly-owned subsidiary of the company. The shareholders’ meeting will be held on March 21 and the e-voting results will be announced on March 23.

InGovern has raised questions over the rationale of the deal citing lack of disclosures and absence of any co-relation with the overall core business of REL. The company has sought shareholders’ approval to invest upto ₹15 crore in MIC, along with ratification of a past investment made last December.

The proxy firm said that REL is already going through an uncertain phase and a regulatory probe. Further, as there is an imminent change in promoters and management which may take place post the takeover by the Burmans, the proposed investment must be kept at bay for now.

Red flags

Raising several red flags on the proposed resolution, InGovern said REL has not disclosed details regarding the financials and the valuation of MIC. Further, the details of the funding requirement by MIC and its current debt-service records are not available.

Pointing out that the investment does not align with REL’s core business, InGovern highlighted that REL has not put on record anything to demonstrate synergy between MIC and the company’s existing insurance broking business. As per InGovern, investing in a web aggregator can give rise to conflict of interest.

While Religare is a publicly listed company, the resolution does not outline any rationale for the the company to invest in a web aggregator and any benefits that it can gain by doing so. There is lack of clarity on the motive behind the investment, the report states.

Wrong capital allocation

InGovern has emphasised that the proposed investment amounts to a wrong capital allocation at a time when there are significant upcoming payables in the form of loans and existing capital that must be deployed in its core business areas. Therefore, the proposed acquisition does not fit in REL’s overall core business and amounts to wrong capital allocation, said InGovern.

The proxy firm has asked investors to vote in favour of the proposal to delete Articles 153 to 181 of the Article of Association concerning the provisions pertaining to the Shareholders Agreement. The sections proposed to be deleted contain provisions as per the Shareholders Agreement entered by Religare Enterprises, Malvinder Mohan Singh, Shivinder Mohan Singh (erstwhile promoters) and International Finance Corporation (IFC.)

IFC has divested its entire shareholding in the company last month and hence all obligations of the company and the sponsors IFC (other than the Banking Investment Right) have ceased.

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