Dubai: The problems that erupted at NMC Health did not end there - it soon managed to consume sister company, Finablr, and the most prized possession within it, the UAE Exchange Centre.
The most distressing aspect of the latest findings relates to about $100 million in cheques issued, which “may have been used as security for financing arrangements for the benefit of third-parties”. A statement to the London Stock Exchange, on Monday (March 16), had this to say: “The existence of these cheques has only recently been brought to the attention of the Board (of Directors) and urgent investigations are ongoing.”
The Finablr stock has been suspended. From a high of 2.15 pounds on December 11, 2019, it was at 45 pence on March 12. At the time of suspension, it was at 10 pence.
This is the second time in so many weeks that a Board of Directors associated with a company founded by Indian billionaire Dr. B.R. Shetty had come up with findings related to fund use. At NMC Health, the Board found that the UAE’s largest healthcare operator was carrying an additional $2.7 billion that was not on its books. This was on top of the $2 billion plus it was reported as carrying.
According to a banker associated with both NMC Health and Finablr, “It was never likely that such discrepancies were confined to one entity. The only way forward for both companies is to begin with a new slate. The process has already started at NMC Health.
“Compared to $2.7 billion in off-the-book debts, about $100 million in cheques used as security amounts to nothing much… but how could these things have been allowed without checks and balances? And that too at London Stock Exchange listed companies.” (NMC Health and Finablr had Ernst & Young as auditor.) Cleaning up of the the Finablr slate has started - with the stepping down of Finablr’s CEO, Promoth Manghat on Monday. Earlier, his brother, Prasanth Manghat, was fired as CEO at NMC Health, (well before the $2.7 billion in debts came to light). Incidentally, the brothers and their immediate family own and operate a state-of-the art hospital in the south Indian state of Kerala. It was opened last year.
Glitches and more
Ironically, on the same day it lost the Finablr CEO, the UAE Exchange Centre, the cash cow at the heart of Group, said it was temporarily supending remittance services to deal with a “technical” glitch.
In recent weeks, the UAE Exchange Centre had been beset with delays on remittances sent to most countries, excluding India. The problems were particularly rife in funds being sent to the US, and was a fact acknowledged by UAE Exchange Centre staff to customers.
Now, UAE Exchange Centre will need to get back on track even as an investigation goes on at its parent company. This could not have come at a worse possible time - remittance volumes have shot up significantly from the UAE to markets such as India since the start of the month after the rupee and other currencies came under pressure.) “They are the biggest name in the UAE currency remittance business - all the other players will be trying to grab its market share in the coming days,” said a CEO at a competing money house.
Go slow on stake sell-off
With the investigation now on, it is unlikely that Finablr will find it easy to sell a 40 per cent or more stake in the company. There had been interested parties, most of them with an eye on the UAE Exchange Centre, but they have since decided to stay on the sidelines until the investigations are over.
For sure, no one wants to get hit with new facts - of “hidden” debts - being announced as they prepare for a bid.
This is what the Board of Directors had to say on March 12: “Following further discussions with the Company’s executive management, promoter shareholders, independent auditors, and in light of meetings of the Audit Committee has been reassured that the Company has no undisclosed related-party transactions or unrecorded on or off-balance-sheet financing arrangements.”
Then came the news about the $100 million in cheques being written out as “security for financing arrangements for the benefit of third-parties”.
With an investigation on, no one is betting against more such findings.
What about shareholders?
In all of this, no one seems to be thinking too much about the retail investors in Finablr, which ahead of its May 2019 listing, was marketed as a must-have stock to own. The stock had reached over 2 pounds as recently as December last - at the time of its suspension on Monday, it was a sorry 10 pence.
That’s a lot of value erosion for a company was launched to take on new roles in the financial services business. And create value.
1. The Board appointed Kroll, a risk consultancy, to carry out a “more comprehensive” review of related-party transactions and on and off-balance-sheet debt, including the issues regarding the ($100 million in) cheques and any other contingent liabilities
2. The Board has decided to appoint an accounting advisory team to support and strengthen Finablr’s finance function with a focus on liquidity. A further announcement will be made once the appointment is confirmed, it said in the statement to London stock Exchange.
3. The Board is in the “process of discussing” with an independent financial advisor its appointment, to conduct a review of the company’s debt and cashflow position. And to come up with ways to support the management in addressing its short- and longer-term financing needs. “A further announcement will be made once the appointment has been finalised,” Finablr said.
4. The Board is to set up a committee of its independent non-executive directors to carry out a comprehensive review of the Company’s liquidity and cashflow management functions, its financial and debt position, and its strategic options.
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