In today's Finshots, we give you a primer of the tussle between Religare and Dabur's Burman family and tell you why SEBI has finally decided to intervene.

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The Story

Religare Enterprises’ chairperson, Rashmi Saluja is in a tight spot right now. And it's because the SEBI (Securities and Exchange Board of India) has been badgering her company’s Board to get approvals from a bunch of regulators. It wants Religare to give in to a hostile takeover bid by the Burman family or the folks who own Dabur.

But why is SEBI doing that, you ask?

Well, actually it’s a rule. And SEBI’s just doing its job as a market regulator. To understand what this weird sounding rule is, you'll have to take a short trip back in time.

In 2018, Shivinder and Malvinder Singh, the common founders of Fortis Hospitals and Religare, were accused of fraud. They allegedly swindled a whopping ₹2,400 crores that belonged to Religare's subsidiary Religare Finvest.

Now, since Religare is a listed financial services firm, investors naturally lost confidence in its management. And this wasn’t a good look for the company.

That’s exactly why it decided to hand over the reins to Rashmi Saluja, Religare’s current chairperson. She was a doctor by profession, had a law degree, an MBA in finance and over two decades of experience handling administrative affairs at various other corporate entities. Her qualifications and experience seemed to tick all the right boxes. And that may have pushed the Board of Directors to think that she was a perfect fit for the role. She would be able to turn around the bitter impression Religare had created, or so they may have thought.

But it seems like Saluja had her task cut out right from the start. It was around this time that the Burmans gradually began increasing their stake in Religare. To put things into perspective, between 2018 and 2023, Dabur and its associated entities’ shareholding in the financial services firm went up from just about 10% to 26%.

And this 26% is exactly what’s creating the problem for Religare right now.

Because here’s the thing. When promoters or investors buy large chunks of a publicly listed company, they have to abide by a few rules chalked out by SEBI. And one of them relates to minority shareholders.

If investors end up buying a controlling stake or over 25% of a company, they have to make an additional open offer to minority shareholders to buy their stake in the company too. The reason is simple. If you’re a minority shareholder in a company holding a few hundred stocks, and there’s a sudden but massive change in ownership that could impact the company’s future, then you have every right to exit an investment. This open offer is what allows you to sell your shares at a certain price and walk away from the investment if you wish.

And that’s exactly what the Burmans did. They announced an open offer to buy more shares in Religare. Or to put it differently, the Burmans were coming for Religare through a hostile takeover bid.

Now, we know what you’re thinking. The Burmans are the promoters of Dabur, an FMCG (Fast Moving Consumer Goods) giant. So, why are they even interested in a financial services firm like Religare?

You see, Dabur started off with humble roots nearly 140 years ago. Its founder, S K Burman, was an Ayurvedic physician, whose objective was to provide effective and economical healthcare treatments to people in remote villages. So he built a brand that eventually made health supplements, packaged foods and personal care products with an Ayurvedic touch.

As generations stacked up, Dabur’s business interests diversified across healthcare, hospitality, education, media and even financial services. But the Burmans want more. And they’re now looking to create a large financial services platform that dabbles in lending, broking and health insurance services. And Religare fits right into that scheme of things. Hence, the open offer.

The problem with this idea though is that the Burmans will undoubtedly start influencing Religare’s operations. They could even choose to put someone else behind Religare’s corporate wheel if they want to. And that might not bode well for Rashmi Saluja. So you can imagine that her best knee jerk reaction would be to well… resist! And she’s doing that quite tactfully.

Look, Religare isn’t just a financial services company regulated by the SEBI. It’s an NBFC (Non Banking Financial Company) regulated by the RBI (Reserve Bank of India) too. So going by the RBI’s rules, Religare must write an application to the Central Bank seeking an approval for the takeover.

Not just that. Its presence in the insurance business means that this takeover needs the blessing of the IRDAI (Insurance Regulatory and Development Authority) as well.

And if the Religare board does not initiate these applications, the Burmans can’t go ahead. They can’t even usher in the applications themselves because the rules specifically say that this obligation lies with the target company that is being acquired or Religare in this case.

Religare’s Board though, hasn’t sought approvals from any of the regulators until now on the grounds that Burmans don’t fulfil the requirement of being ‘fit and proper’ as per RBI’s rules. It alleges that the family was involved in frauds like the infamous Mahadev betting scam, a scam centered on illegal betting apps. It even accused the Burmans of colluding with Fortis’ Singh brothers in the fraud that transpired at Religare earlier. And when most of these allegations seemed to have no substance or proof, Religare cried foul about how the Burmans are paying an unfairly low price for the company.

But SEBI’s not having any of it. It’s been watching how Religare and its Board have been bypassing the rules by borrowing time. And that’s exactly why it shot off a notice to Saluja and her company, a few days ago, pushing them to get all the regulatory approvals they need.

Will the Religare board give in? Well, that’s something we’ll only have to wait and see.

Until then…

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