IiAS slams Raymond's bid to sell JK House to promoters at throwaway price

Company says all facts placed before shareholders and approvals sought

Proxy firm Institutional Investor Advisory Services (IiAS) has slammed textile major Raymond for its move to sell valuable real estate to promoters.

Estimating that the move will cost over Rs 650 crore in opportunity lost, IiAS has asked shareholders to vote against a resolution that is coming up for vote on June 5.

In its forthcoming annual general meeting (AGM) on June 5, 2017, Raymond Limited has presented a resolution to make an offer to sell its premium real estate at throw-away rates to its promoters and their extended family.

Resolution 10 of the AGM said: "RESOLVED THAT in compliance with and subject to the provisions of Section 188 and other applicable provisions of the Companies Act, 2013 and the Rules framed thereunder (including any statutory modification(s) or re-enactment thereof for the time being in force) and the Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015 as may be applicable from time-to-time, and subject to Memorandum of Association and Articles of Associations of the Company, the making of an offer by the Company to each of the four sublessees namely: (a) Dr Vijaypat Singhania, (b) Mr Gautam Hari Singhania, (c) Mr Akshaypat Singhania and (d) Ms Veenadevi Singhania along with Mr Anant Singhania (collectively referred as 'sublessees') for the purchase of premises in the new building known as 'J K House' situated at 59A, Bhulabhai Desai Road, Mumbai 400 026, under the Tripartite Agreements dated November 6, 2007 executed between the Company, Pashmina Holdings Limited and the sublessees ("Tripartite Agreements"), be and is hereby approved;"

"Should this transaction go through, IiAS estimates that it will result in an opportunity loss of over Rs 650 crore for the company and its shareholders. IiAS recommends voting AGAINST this transaction. In our opinion, the board has failed to protect the interests of the minority shareholders. The company and its directors must prepare themselves for shareholders seeking recompense," IiAS warned in its report.

In an emailed statement, Raymond's spokesperson said that all facts have been placed before the shareholders. "We adhere to the highest level of corporate governance. All relevant facts were put forth in the AGM notice to the shareholders much before any report was published, to take an informed decision. Needless to state that the promoters, being interested parties, will abstain from voting on this matter," the spokesperson said.

According to the proxy firm, JK House is a recently rebuilt building located at Breach Candy, Mumbai. Breach Candy is one of the most expensive real-estate locations in Mumbai. Raymond's own valuation report states that the residential property is valued at Rs 1,17,000 per square foot (built up), putting a value on the entire transaction at Rs 710 crore. Raymond, however, proposes to sell the property to the Singhania family factions for Rs 9,200 per square foot of carpet area — an over 90 per cent discount to market rates.

IiAS estimates the opportunity loss at over Rs 650 crore, which is large in the context of Raymond's own limited size: it aggregates over Rs 100 per share. Raymond has spent Rs 270 crore, not including the cost of land, in rebuilding JK House. The sale price of Rs 9,200 per square foot is lower than JK House's average cost of construction, estimated at over Rs 11,000 per square foot. If the company were to sell the residential properties at market value, it would more than recover its cost of development, IiAS said.

The transaction lends credence to an investor's allegation that the promoters are using the company to support their own lavish lifestyle, IiAS alleged. Not only is the price of the transaction nefariously low, the structure itself is inefficient, it added.