Will NMC’s health hit UAE Exchange Centre?

Dubai: The problems at NMC Health could well spill over into Finablr, the financial services holding company that was launched by Dr. B.R. Shetty and which listed on London Stock Exchange in May 2019.

Finablr’s stock price is going through some turmoil - down 27 per cent just in the last five days - as more revelations pile up about NMC’s financial health. But that’s not all.

Highly placed sources say that UAE Exchange Centre, the cashcow at the centre of Finablr’s holdings, has been conducting an internal review at its local operations in recent days. There has been no official word from UAE Exchange Centre about whether such a review is going on.

“Both NMC and UAE Exchange Centre/Finablr have a shared lineage and heritage in the form of Dr. Shetty - problems at one cannot be insulated from the other,” said a banking industry source with close association with both entities.

That’s not all - Finablr’s CEO is Promoth Manghat, whose brother, Prasanth Manghat, was unceremoniously dismissed as CEO of NMC on February 26. Since then, questions have been raised about whether Finablr too will see a change in management. (Promoth, incidentally, was CEO of UAE Exchange Centre until 2015 before taking on the same position at the then newly created holding company Finablr.)

Who owns how much?

What’s known is that Finablr has been trying to track down the exact shareholding held by its principals, including Dr. Shetty. That’s because Dr. Shetty had pledged 56 per cent in his 63 per cent stake to take loans five years ago. Now, this is where the problem lies - the Finablr share is now in a freefall, capped by the 27 per cent decline in the last five days. And it was as recently as December 19 that the share was at a one-year high of 228.4 pence. It closed March 3 at 50.9.)

“If Dr. Shetty’s shares are pledged with banks, it’s unlikely they will be retaining the whole of 56 per cent if prices keep dropping,” said an industry source. “It will be interesting to know whether - or how much - of these shares have since been sold.”

Missed deadline

Finablr was to submit the current status of its shareholding structure to London Stock Exchange by end of last month, according to a filing issued by it.

On February 19, it issued a statement: “The independent directors have been informed that the Shetty family and their advisers are not yet in a position fully to respond to them but have undertaken to do so as soon as possible. The independent directors are seeking to resolve the position by the end of February 2020 at the latest.”

The statement added that the directors “continued urgently to seek further information from the Shetty family to clarify the position as to the respective interests in the Company’s shares, including through the issuance of formal notices under Section 793 of the Companies Act 2006.”

But there has been no subsequent filing by Finablr on the shareholding status since then.

Industry sources are worried that delays on clearing up these issues will impact on the performance of Finablr... and by extension that of UAE Exchange Centre.

Remittance powerhouse

The UAE Exchange Centre has been a clear leader in the currency exchange space, with a significant hold of the low- to mid-income expats’ remittances. “But that is not where it’s main strengths are - UAE Exchange is a clear leader in the corporate transaction space,” said a top official at a competitor. “I would assume corporate transactions would make up 50 per cent of their total volumes - and that’s huge. In comparison, other exchange houses would be in the 10-20 per cent range.

“Both NMC and UAE Exchange Centre are respective leaders in their spaces - they share so much history. And when one starts hurting, the other could feel the pain as well.”

Watch out for the credit ratings

NMC Health’s rating has been downgraded by Moody’s, which instantly impacts its ability to secure loans at favourable rates. This is what Moody’s had to say: “It no longer considers the company’s audited financial statements to be reliable.”

And that the NMC debt rating was downgraded because the “company no longer has reliable access to funding.”

Going forward, will Finablr be able to insulate itself from NMC? If yes, how quickly can it do so?

On the financials, Finbalr has not been doing too well. It has the coronavirus to blame as well.

“While the impact of the coronavirus is at present observable mainly in the consumer foreign exchange segment, the situation is developing rapidly around the world and could have knock-on effects on processed volumes in other segments,” Finablr said in a filing with London Stock Exchange. “The company’s cross-border payments segment could be impacted, for example, as a material portion of the business happens at physical locations.” (At the end of the first-half of 2019, Finablr had debts of $334 million. NMC, for comparison, had $2 billion.)

What next?

Banking industry sources say clarity on who holds what shares is the need of the hour for Finablr. More delays pinning this down will only add to the swirl of doubts.

“However difficult it may prove to be, Finablr and UAE Exchange Centre needs to distance itself from the problems at NMC,” said a senior marketing source. “Brand associations carry both benefits and risks. Clearly, now is not the time for any association in the minds of consumers.”

How well and quickly can Finablr - and UAE Exchange Centre - bring out that degree of separation?