NMC Hospital Royal
One of the crown jewels in NMC Health's portfolio - the NMC Hospital Royal in Abu Dhabi. Image Credit: Gulf News Archive

Dubai: Michael Davis is having a busy first week as the new (interim) CEO of NMC Health, the UAE’s largest hospital operator and now facing the fight of its life to nurse itself back into financial health.

First up, NMC Health confirmed that it will be asking lender banks to go easy on debt repayments owed to them. The Abu Dhabi headquartered group’s combined debt exposure is upwards of $2 billion, announced at the time of the 2019 half-yearly results. Banking sources say some of it has been paid back.

If the banks agree – and the chances are they will – to not press on payment obligations, NMC will achieve an “immediate stabilization of the group’s financing”. More importantly, it will buy precious time for the company.

Davis is uniquely placed to oversee the high stakes negotiations with lenders and other stakeholders. Before joining NMC as Chief Operating Officer, he was holding a top positon at TVM Healthcare, a private equity fund that specializes in healthcare-related businesses.

“The CEO is a “people’s person” – employees can see him as being completely transparent in his dealings with them,” said an official who knows him well. “In the last 7 days, he’s been working 16 hours a day… trying to save the company.”

He doesn't even have a CFO to call on... the incumbent, Prashanth Shenoy, has been asked to extend his leave.

NMC Interim CEO Michael Davis
Michael Davis in his role as interim CEO needs to come up with a turnaround plan... and fast. Image Credit: Gulf News Archive

But more immediately, NMC will need to pay off staff salaries, which are typically paid by the 25th of each month; but the February salaries are yet to be credited to staff accounts. It is likely to happen this week. In the UAE, NMC employs more than 16,000 staff.

According to a doctor at a clinic affiliated with NMC group, most of the staff at partner/affiliated clinics and hospitals have received their cheques, but it is at the directly-owned facilities the delays has happened.

No talent drain… yet

As has been reported before, NMC has managed to retain its pool of highly skilled physicians, nurses and technical staff. Where the exodus is happening is at the middle- and senior management levels.

“If Davis can make a swift move to reassure staff that their interests will be taken care of, NMC should not have an issue,” said a top official at another UAE-based hotel operator. “There may be a few departures of some doctors, but that happens all the time. Also, NMC has been having some of the best salary and compensation packages for its top talent.

“Right now, the UAE healthcare scene is saturated, and there may not be enough opportunities for doctors and nursing staff to seek alternate options.”

Debt is a headache

But the size of the debt on its books – around $2 billion – will weigh heavily, and not just on NMC. Because anyone acquiring the company will have to assume these obligations. And the future of NMC requires that it should be bought by someone with deep pockets.

“With each passing day, one thing is obvious – NMC needs a new ownership,” said a banking source. “It’s not like an Abraaj (the private equity giant that imploded over lax governance) or Drake & Scull (the contracting company that is now living with gut-wrenching financial losses). Abraaj and Drake & Scull issues have caused ripples… but they were confined to within their sectors.

“NMC, literally, touches just about every other resident in the UAE. It’s future is “systemically” important.” (The group’s network of hospitals and clinics handles more than 8 million patients a year, of which 6 million plus are just from the UAE alone.)

Escalating the debt obligation

NMC's principal shareholders - Dr. B.R. Shetty, Khaleefa Butti Omair Yousif Ahmed Al Muhairi, and Saeed Mohammed Butti Mohamed Khalfan al-Qebaisi - now have less than 30 per cent of its shares. This set off a provision in the debt deal when principal shareholders cease to own more than 30 per cent in a company.

This is why NMC is now asking its banks for a relook at these terms. 

All eyes - and hopes - on Mubadala

Among most NMC watchers, the belief is that only Mubadala, the Abu Dhabi Government owned investment vehicle, can come in and save the day. More than any future owner, Mubadala would best realise the value of NMC in the wider scheme of things, they add.

But any deal may have to wait until an internal investigation that NMC launched recently is complete. Now, that may take longer than was initially expected, so much so, many don’t expect the 2019 results to be announced even by April 30… which is the last allowed day for it to come.

The rating agency, Moody’s, has also dealt a body blow to NMC, saying “it no longer considers the company’s audited financial statements to be reliable.”

It has downgraded NMC debt rating, because the “company no longer has reliable access to funding.”

The bad news is piling up for NMC, which is truly ironic for a company that in 2018 delivered its best performance in history on both revenues and profits.

BUS 200227 NMC-1582811716758
A systemically vital company for the UAE. NMC's network of hospitals and clinics in the country has made it the largest healthcare operator. Image Credit: Reuters

How can NMC pay off debts?

NMC operates a portfolio of 100 healthcare facilities in the UAE alone, including the NMC Hospital Royal in Abu Dhabi and multiple specialty centres. Selling off some of these and retaining the core could help with some of the debt clearance.

But will NMC go down that road? Will asset stripping make NMC less of a compelling buy for any future owner?

These aren’t the only considerations. “The issue is whether the Board of Directors (now down to six from 11 members) will have control over this debt clearing process,” said Hussain Alladdin, Head of Research at GCP. “Or whether it will be for the banks to pursue this. Or whether it would come under the Bankruptcy Law, and whether the courts will oversee any such asset auction.”

So many questions, and so many answers yet to come.

But Michael Davis will continue to do the hard yards, make those “16-hour” workdays count. It’s not just him and the 16,500 employees who have a stake in NMC’s future. Anyone who has turned up for an appointment at its hospitals and clinics also have a stake in it.

NMC owes these banks
* In 2018, NMC raised $2 billion from banks that included Citi, JPMorgan and Standard Chartered, according to Reuters. That loan included the refinancing of an existing facility of more than $1 billion and a bridge loan.
* First Abu Dhabi Bank and HSBC are also lenders to the company, Reuters added.
* NMC is askings its banks for a "standstill" agreement on its debts, which means that NMC can then have more time to meet its obligations.