Complex Made Simple

NMC Healthcare’s business on recovery path, but with a major legal twist

NMC Healthcare Ltd, the largest private healthcare company in the UAE, recently reported its financial and operating results for the financial year ending June 30, 2021. A legal claim threatens to torpedo the progress

Gross revenues for the NMC’s UAE and Oman business of $611 million are 10% ahead of the business plan There will be a meeting for creditors to vote on the proposed DOCA as of September 1st, 2021 The founder of NMC Health has in August this year launched a legal claim nearing $8 billion in value

NMC Healthcare Ltd, the largest private healthcare company in the UAE, recently reported its financial and operating results for the financial year ending June 30, 2021.

Gross revenues for the NMC’s UAE and Oman business of $611 million are 10% ahead of the business plan.

The number of patient encounters across the group has grown significantly to 4.4 million year-to-date (in 2020, there were 2.4 million patient encounters) as full operating capacity has returned in the wake of COVID-19.

The group administered 98,919 vaccinations and 1.7million PCR tests in H1, 2021.

The group registered the delivery of EBITDA of $103.9 mn during H1, 50% ahead of the business plan (budgeted $69.3 mn).

Following overwhelming support from creditors, a proposed deed of company arrangement (DOCA) will allow the NMC group companies to exit administration and continue to operate the core business of the NMC group.

NMC, the former FTSE 100 hospital operator, was placed into administration in April last year when more than $4 billion of debts were discovered after being hidden from its balance sheet in a suspected fraud that threatened the London stock market’s reputation for good governance.

The NMC crisis was set off by a report issued by the US financial services firm Muddy Waters Research, which in December of 2019 said that there were yawning gaps in the company’s financial reporting.

Upon this exit, the shares of the DOCA Companies other than NMC Healthcare LTD (in administration) (“LTD”) and substantially all the assets of NMC Healthcare will be transferred to the new NMC group.

LTD itself will remain in administration in order to pursue certain potential litigation claims on behalf of itself and the other DOCA companies, any proceeds of which will be distributed to the relevant creditors in accordance with the terms of the DOCAs.

There will be a meeting for creditors to vote on the proposed DOCA as of September 1st, 2021. Creditors may also vote via proxy. Once confirmed by the ADGM courts, it is anticipated implementation will take between 3-5 months to complete the transfer of shares and assets of the DOCA companies as well as obtaining clearance from the appropriate government entities.

Michael Davis

Michael Davis, NMC Chief Executive Officer said: “We have brought the company back from the brink of near total collapse to secure NMC’s future and to ensure that our ability to provide world-class patient care is preserved. Over the past 18 months we worked to stabilize the group’s financial position and improved operations, saving over $2 billion of value in the process.”

Fired founder files $8bn lawsuit

The founder of NMC Health has in August this year accused its fired chief executive, auditor Ernst & Young (EY), and two banks of conspiring in a six-year fraud, and launched a legal claim against them nearing $8 billion in value.

In a court document filed in New York, lawyers for BR Shetty claimed that the Indian-born tycoon had been defrauded through a “debt-fueled Ponzi scheme,” involving fictitious invoices, artificial inflation of the healthcare group’s revenues, and the siphoning off of funds for personal gain.

The claim alleges that audit firm EY, alongside Bank of Baroda, one of India’s largest lenders, and Netherlands-based Credit Europe Bank, was central to a “coordinated and deliberate conspiracy” in which more than $5bn was stolen from companies in Shetty’s business empire.

Executives at Shetty’s companies had forged his signature on personal guarantees to secure fraudulent loans and then set him up as the “fall guy” in the event their scheme was ever uncovered, the lawyers claimed.

“If Baroda had complied with existing AML [anti-money laundering] laws and investigated the suspicious transactions, the massive accounting fraud and theft would have been discovered in its infancy and the plaintiffs would never have sustained their financial injury,” they said.

The defendants named in the court claim include brothers Prasanth and Promoth Manghat, respectively the former chief executives of NMC and Finablr, the London-listed fintech company founded by Shetty.

Finablr’s shares were suspended in March 2020 and the company later reported more than $1bn of undisclosed debt.

Calling the process a “Ponzi scheme”, they alleged that bigger loans were procured to pay off prior debt and that defendants “siphoned off proceeds from these undisclosed and fraudulently obtained loans and disbursed the stolen funds amongst themselves.”

Bank of Baroda and Credit Europe Bank were central to the fraud, the lawyers said. The Manghat brothers convinced senior Baroda executives to join the conspiracy by “offering and paying them kickbacks from the siphoned funds,” they said.

The Manghat brothers were also alleged to be part of a conspiracy to create fake invoices for sales purportedly made by group companies to NMC to inflate its sales figures.

Credit Europe Bank was aware of the “bogus” invoices but continued to lend because it received a 5% fee on its loans, the lawyers said.

Promoth Manghat paid himself $2 mn out of an account belonging to Shetty, according to the claim. The biggest beneficiary of the account, according to the legal claim, was Abdul Rahman Basaddiq, who received a total of $3 mn in “kickback payments” from the Manghat brothers.

Bassadiq was a former partner at EY who served on the boards of NMC and Finablr.

Reactions to the claim

“We believe this case is without merit and we intend to defend it vigorously,” EY said.

Informed sources in the UAE who had dealt with Shetty in the past are also baffled that he has taken on a legal battle in the US despite being involved in sundry legal issues in the UAE, the UK courts, and India.

“It’s interesting that Shetty has sought damages of near $8 bn which is more or less the same amount that was siphoned off from NMC’s books while he was holding senior positions in the healthcare group,” said a senior banker closely involved in the rescue act that the hospital operator went through since April 2020.

“The financial misdeeds happened in the UAE, and involving US courts is more of a diversionary play. It was NMC funds that got diverted, not Shetty’s. If at all anyone has a claim on damages, it is NMC’s lenders and creditors, most notably ADCB.”

It is believed that once the DOCA is voted through, legal cases will start to be brought.