On Monday, Religare Enterprises Ltd. (REL) announced a significant step towards enhancing its governance by launching a comprehensive review of its operations and those of its subsidiaries, Religare Finvest and Religare Housing. In an effort to secure the necessary funds for ongoing operations, the company has reached out to its promoters, the Burman family.
Governance Review Initiative
The primary aim of this governance review is to analyze past operational practices, propose enhancements to systems and controls for future implementation, and pinpoint any instances of potential misconduct involving current or former employees of the companies involved. This initiative has been officially communicated in an exchange filing.
To facilitate this critical review, REL has enlisted the expertise of Trilegal, with support from Grant Thornton Bharat. This engagement underscores the company’s commitment to improving its governance framework.
Financial Strategies and Immediate Needs
The REL board recently assessed the company’s financial status and identified a cash flow gap anticipated over the coming months. To address this urgent funding need, the board has proposed securing a short-term inter-corporate loan (ICL) from the Burman family or associated entities. This approach is deemed ideal given the pressing timeline for these financial requirements.
These governance and financial maneuvers come shortly after the Burman family was officially recognized as the company’s promoters on February 20. Following their acquisition of majority control, the Burman family expressed their intention to collaborate closely with REL’s leadership to define strategic directions and foster long-term value creation. A spokesperson from the group emphasized, “Our investment ethos revolves around businesses with strong fundamentals and growth potential, and we will uphold the highest standards of governance at REL.”
Recent Developments and Challenges
The transition to Burman family control was not without challenges, facing scrutiny from regulators and legal hurdles. In mid-February, Rashmi Saluja, the executive chairperson, was removed from her director role after a significant 97% of shareholders voted against her reappointment due to rotation liabilities. The Reserve Bank of India (RBI) also approved this transition.
Additionally, Digvijay (Danny) Gaekwad encountered difficulties in depositing the mandated ₹600 crore earnest money as directed by the Supreme Court. Earlier, three proxy advisory firms had raised concerns regarding Saluja’s reappointment, highlighting issues such as her high remuneration and disproportionate grant of Employee Stock Options (ESOPs) amidst ongoing legal challenges.
Market Response
Following these developments, REL’s shares experienced a decline, closing at ₹235.20 on the NSE, reflecting a drop of 2.99% on Monday.
In summary, as Religare Enterprises embarks on a governance overhaul, the company’s strategic moves aim to solidify its financial foundation and navigate its recent leadership transitions effectively. The focus now shifts to ensuring robust operational practices and a sustainable financial strategy moving forward.
