August 04, 2024

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THE BATTLE FOR RELIGARE

WILL YOU WON'T you, will you clear the way, Religare? Thequestion sums up the Securities and Exchange Board of India's interim order-cum-show-cause notice that the securities market watchdog posted on its website on June 19. The trigger: the reluctance of the `6,300-crore Religare Enterprises Ltd (REL), a listed company, to get the paperwork done for the Burmans of Dabur to wrap up the open offer they made to its shareholders in September last year. Sebi wants to know why Religare is not getting the clearances required from the regulators that govern its various businesses for the open offer to proceed and why it has ignored Sebi's "explicit" advice. The Burmans' open offer requires "a logical conclusion," Sebi says, after listing every recorded step in the nine-month saga and Religare's failure to back its charges against the Burmans. Sebi's 12-page document, over 4,400 words long, says Religare must promise to apply for clearances to the regulators concerned on or before July 12, 2024, or Sebi will restrain Religare from accessing the securities market. Religare is a diversified financial services company that operates in retail stockbroking, health insurance, and lending to small and medium businesses, among others. REL is registered as an NBFC with the Reserve Bank of IndiaOn July 10, the Securities Appellate Tribunal (SAT) directed Religare to file the necessary open offer application with "regulatory authorities including RBI to comply with the directions" contained in Sebi's interim order. An extension of time was granted till July 22 to submit this application. SAT has also given an interim stay on the show-cause notice issued to REL's top management and provided relief till the next hearing on August 29. This was after REL moved SAT seeking relief from Sebi's orderBut first, let's go back to how the Burmans accumulated stake in REL. Starting in April 2018, the Burmans, promoters of the

BOT IS BACK

IT CAME CRASHING down about 10 years ago. Once the most sought-after format for highway construction, projects under the BOT (Build-Operate-Transfer) Toll model--that were constructed completely by private players--nosedived from 96% of awards in 2012 to zero just seven years later in 2019And there it has languished since, rising a tad to 3-5% till FY23 before it collapsed to zero again in FY24, bogged down by the burden of the glory years of 2006-13, when money was cheap, private sector enthusiasm was high, traffic projections were optimistic, and the government was keen to build miles and miles of roads. But when the dust settled, those private players were left to grapple with high debt burdens, higher land acquisition costs, costly litigation, low traffic and lower toll collections, and ever-increasing timelines. Big players like HCC, Gammon, and IVRCL were caught in a debt trap, and others have been hesitant to enter the BOT arena as a resultInstead, there was a shift to- wards EPC (engineering, procurement, and construction) and HAM (hybrid annuity model) projects. In EPC, the National Highways Authority of India (NHAI) handles everything from acquiring land to getting project clearance, etc. In HAM, introduced to boost the waning interest of private players, the government fronts 40% of the project cost, and the awardee has to raise the rest of the amount. The government pays the remaining amount in annuity mode over the period of operation--the private players have no right to collect a tollBut this shift has left the NHAI with significantly high debt. Its debt stands at `3.48 lakh crore as of September 2023--the majority of it piled up between FY18 and FY21. In 2014, NHAI's debt was `23,800 crore. Considering the government's continued focus on infrastructure development in recent years, getting private players to invest in the road sector again is a top priority for the Ministry of Road Transport and Highways (MoRTH), headed by Minister Nitin GadkariThings are expected to change now with the government sweetening BOT agreements. A confident NHAI has announced a pipeline of 53 projects worth about `2 lakh crore through the BOT mode in the next three to five yearsAmong other things, the revised model concession agreement (MCA) announced by the NHAI provides significant risk mitigation compared to the earlier model. It now allows firms to borrow from non-bank lenders and has enhanced