Dubai: The next two months will decide whether the UAE’s biggest private healthcare operator NMC will be put on sale or whether it is better off going through a full-scale reorganisation.
The first meeting of the Committee of Creditors (CoC) is due for the second-half of January, and details regarding what NMC Healthcare should be doing next will be on the agenda. NMC could close this year with revenues in the range of Dh5 billion.
As of now, the “business is stable and performing ahead of the budget – liquidity is better than forecast,” states the latest update from the administrators overseeing the company’s transition into financial health.
“The establishment of a Committee of Creditors ensures an efficient process through the creation of a forum for the administrators to engage with creditors. This forum will co-exist alongside the ad-hoc committee.”
On the group performance, "Due to the strong COVID recovery, hospitals are well ahead of the BP (business plan) and the key driver for the BP over-performance," the update notes. "Net operating cashflow is well ahead of forecast due to strong underlying business performance combined with tight cash controls and working capital management."
As for the investigations that continue simultaneously to recover missing funds, the update says there is "continued progress" being made.
Take a longer view
According to industry sources, the way things are going it is more than likely that creditors and other stakeholders will give their approval to go for reorganisation, even though that process will take longer for the benefits to emerge.
It was in April that NMC was formally placed under court ordered administration by a UK court and, more recently, brought under the jurisdiction of ADGM (Abu Dhabi Global Market). This followed much publicised expose of financial wrongdoing by the previous management and some shareholders, which left gaping holes in the operator’s bank obligations.
As things stand now, NMC’s “total debt and guarantees outstanding [are] estimated at $6.8 billion,” the administrators report. Of this, “$5.9 billion relates to core, $0.76 billion relates to the sukuk and convertible and the balance relates to international borrowings. This has yet to be updated for the ongoing claims adjudication process.”
Return to health
Last month, the administrators confirmed: “Due to the faster than anticipated revenue recovery from COVID-19, revenue year-to-date is 10 per cent versus the business plan. Tighter cost control and the acceleration of performance improvement initiatives has resulted in EBITDA being well ahead of the business plan.”
* Plan of reorganisation through scheme of arrangement (75%+ by class);
* Plan of reorganisation through deed of company arrangement (50%+) and
* Sale of core, if better value than plan of reorganisation or not enough votes.
On the agenda
At the January meeting with creditor committee, tentatively scheduled for either January 20 or the 27th, the reorganisation will structure will be provided. It will “provide rationale for the choices around key points” and “lay out the timeline and action plan for implementation”.
Pros and cons
Being patient and working on a top-to-bottom restructure has its plusses. It secures a “right to future and higher proceeds on an exit” as well as creditors’ “participation in any future dividend”.
According to sources, there should be many takers for this line of argument put forth by the administrators. “In an exceptionally difficult phase – from a financial and legal standpoint – NMC has delivered operational results,” a source said. “The cashflow is getting better and the hospitals proved their worth in taking on COVID-19 related activities.”
If enough votes are secured for a reorganisation, then creditors and other stakeholders will have the “ability to decide on timing of an exit to maximise value”.
But if the decision is to sell, creditors’ “recoveries [are] dependent on value of core achievable in a sale process in current circumstances,” the report notes. Plus, their “position in capital structure”.
Tough choices both, and it will soon be time for NMC’s creditors to show which way they plan to go.
