Is $2 billion too high or low for UAE’s NMC Health?

Dubai: A new investor – preferably from within the UAE - buying up NMC would be the best cure the UAE’s troubled hospital operator can hope for in the circumstances, according to industry sources.

“NMC is systemically important to the UAE economy and society because of its status as a healthcare operator,” said a source in the banking industry. “The problems at NMC right now have to do with bad decisions being made… so far, there’s no issue on how the hospitals and other facilities within the network function.

“But if the current situation continues and there are delays to a buyer coming in, then it could at some point hit NMC’s reputation… and when that suffers, it will cause problems on day-to-day running.”

Already, some of it is visible in NMC corporate corridors – in recent weeks, there have been quite a few departures of senior management personnel, and which accelerated after the dismissal of the hugely influential CEO, Prashant Manghat last week.

But, thankfully, this has not affected the ranks of the company’s physicians and specialists. That’s the task the interim CEO, Michael Davis, will need to take up pronto.

Who’s interested in buying?

Currently, if speculation is to be believed, two entities may have formally expressed interest in buying stakes in NMC Health, which is headquartered in Abu Dhabi but has its shares listed on London stock Exchange (it had the IPO in 2012). One of the names is that of Mubadala, the Abu Dhabi Government-owned enterprise. (There was talk about a third bidder, but, apparently, it pulled out later.)

The market’s hoping it would be Mubadala who will come on board – “no one knows the Abu Dhabi corporate and financial landscape better than Mubadala,” is how one ex-banker says it.

More than 8 million people a year take treatment at NMC facilities, the majority of these being in the UAE. It is often said that just about every expat in Abu Dhabi had at some point passed through the portals of an NMC facility. And Dr Shetty and NMC were the benchmark for how an expat-owned business can grow in the UAE.

The group has, in recent years, been extending its reach into the other emirates, through acquisitions such as Sharjah’s Al Zahra Hospital and Sunny Medical Centre. These helped it tap new neighbourhoods and income categories.

A new speciality hospital is to open shortly in Dubai, in Al Ghusais, and right next to an existing facility.

How soon can a deal happen?

That’s a million-dollar question… or even a $2 billion one.

The $2 billion value is what the market capitalization of NMC had dropped down to after late December, over allegations of fudging the balance-sheets and doubts over the exact stakes held by key shareholders, including Dr B.R. Shetty, the founder and ex-Chairman.

Any new investor will want to have a majority stake, that’s for sure. “When there’s been an 80 per cent fall in the perceived value of the company – from $10 billion to $2 billion – I don’t think any investor would just be satisfied with a minority holding,” said a source at the company.

But the timing of the deal isn’t a straight-forward equation. NMC Health currently has an internal investigation/review going on, which is yet to be complete. But it was the review that led to Manghat’s departure.

It is not known how long this review will continue. At the same time, the London stock market regulator initiated its own investigations into the company, and which could take up more time.

As if that’s not enough, there are various legal pursuits initiated by Dr Shetty, and NMC Health’s former vice-chairman Khalifa Butti Omair Yousif Ahmed Al Muhairi. And it could soon be Manghat’s turn to take the legal recourse over the manner of his dismissal.

In a statement issued last week, Al Muhairi did not mince words - “I am surprised and greatly disappointed to read NMC’s statement regarding what is described as the independent review, CEO removal and other matters.

“Despite my obvious and communicated willingness to assist the committee and its advisers, I have not been given a reasonable opportunity to engage with and assist the investigation with the benefit of the key documentation relating to the events in question.”

How long will the investigation take?

So, any deal involving a new buyer could happen once the key investigations – the internal review and that by LSE – are done with. That’s the only sensible option for any buyer.

“If the investigations unearth something, then it could mean a further erosion in the NMC valuation,” said Hussain Alladdin, Head of Research at GCP, a consultancy. “No buyer would want to miss out on that option to get a bigger discount on the purchase price.”

If Alladdin’s right, sometime in the second quarter could be the likely date for a deal, or at least make progress towards one.

Who owns what?

This is the tricky part, because the exact shareholding of the principal players are in a state of flux.

For instance, “It could be that Dr Shetty’s stake in NMC could be at or around the 1 per cent now (equal to 2 million shares),” said a finance industry source with ties to NMC. “At least, that could be the stake where the shares are not pledged or have any “equity collar” to it.” (Under such transactions, someone can use the shares he holds to take loans from a bank.)

Now, when NMC Health went public in 2012, Dr Shetty had a stake of 19.5 per cent. Later, he “parked” some of those shares to take out fresh funds. Now, just recently, it was confirmed that a sizeable percentage of NMC’s pledged shares were sold by two banks – First Abu Dhabi Bank and another by Bahrain-based Al Salam. In January, Emirates NBD Bank sold a 1.04 per cent stake in NMC for $35.55 million.

“There needs to be clarity on what the exact holdings of NMC’s principal shareholders are – i.e., those shares that carry no obligation,” said a person in the banking industry.

Not just Dr Shetty’s

Such a clarity must also apply to the shareholdings of Al Muhairi and Saeed Al Qebaisi. Last month, they sold around 15 per cent of their holdings in NMC, netting a cool $490 million plus. They could now be left with 17.2 per cent.

“There’s a lot of NMC equity floating around – either pledged or sold by banks, and whatever’s left with the main shareholders,” the source added. “It will take some time for a true picture to emerge – at least to the satisfaction of any new buyer-investor.”

Share suspension

Last Thursday, NMC announced that trading of its shares on LSE is being temporarily suspended, because of the extreme swings they have been through in these two months. That’s quite a comedown for a share that had once made it to the FTSE-100 and soared to a market cap of $10 billion and above.

The share had dropped from 43 pounds to 6 since late December. But interestingly, in the few minutes before trading was suspended on Thursday, the stock gained 2 pounds to 10. And that after Wednesday’s announcement of the CEO’s departure. (There’s an irony here because it was during Manghat’s tenure as CFO first and then the CEO the company went through the IPO and its subsequent high-flying ways.)

“Despite all that negativity, the stock still shot up – this is a company with a rich trackrecord and the future can be just as good,” said a company personnel. “It’s only the present that needs taking care of.”

Hopefully, Mubadala or another prospective buyer can help secure that future.