Mr Dilip Shanghvi’s investment company Shanghvi Finance Pvt Ltd (SFPL) has surrendered their NBFC license. The investment company is a unit of Dilip Shanghvi Group. The group is also responsible for operating the largest pharmaceuticals company in India, Sun Pharma which has m-cap of Rs 99,521.26 crs.

SFPL is a personal investment portfolio company of Mr Dilip Shanghvi. His decision was justified by saying that he plans to focus on his core business of pharmaceuticals. He conveyed that he has no plans to diversify from his core business.

The holdings of SFPL

Dilip Shanghvi owns 98.28% stake in the investment company. SFPL’s investment portfolio consists of 40% shares of Sun Pharma and 52% shares of the Advance Research arm of Sun Pharma. By the end of FY18, the company’s portfolio investments were worth ₹72,436.31 crores. The market value of these investments dropped heavily during FY19 where SFPL’s portfolio amounted to ₹47,326 crore. In response to the issues with the corporate governance following the whistle-blower complain the prices took a sharp decline.

The complaint of the whistleblower:

In Dec’18, Aditya Medisales Ltd a subsidiary of Sun Pharma issued an irrevocable guarantee for the commercial papers.

The Navi Mumbai headquartered company’s commercial papers were worth ₹500 crore. According to the whistle-blower Sun Pharma is lending money in excess to the firms chaired by Valia through its Aditya Medisales Ltd. The complaint was taken into account and Sun Pharma is facing investigation by the market regulator, Securities Exchange Board of India (SEBI).SFPL supported the fundraising of Suraksha Asset Reconstruction (SAR) up to ₹500 crore. SAR is a stressed asset buyout company located in Mumbai. Mr Sudhir Valia who is Mr Dilip’s brother-in-law is the owner of SAR, is now a board member of Sun Pharma.

After the reports of the whistle-blower, the shares of Sun Pharma plummeted 12% making a six-year low of ₹370.20 on January 18, 2019.
Sun Pharma quickly reacted to the reports and ended its business relations with Aditya Medisales Ltd. To scrutinize the corporate governance of the company Sun Pharma assembled a committee.

Future of SFPL

SFPL is surrendering their NBFC license with plans to convert it into a core investment company (CIC) license. Their proposal awaits the clearance by the RBI. The cause of delay was the non-completion of criteria set by the RBI.
Any CIC licensed company is required to hold 90% of its investments in instruments like shares & debentures. 

The Banking regulator has become extremely cautious while issuing CIC licenses. This is due to the liquidity crisis which was triggered by the Asset Liability Mismatch (ALM) of Infrastructure Leasing & Financial Services(IL&FS) in the NBFC sector. Since the IL&FS loan default, RBI has abolished NBFC licenses of over 300 companies. Around 100 companies have opted to surrender their licenses themselves.

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