B.R. Shetty’s shares at heart of NMC problem

“The thrill of speed and freedom makes me love cars,” Shetty told local reporters last year.

Shetty had more than enough money - at least on paper - to afford such a lifestyle from companies he helped found, including hospital operator NMC Health Plc and financial services firm Finablr Plc. On December 10, his stakes in the public companies were valued at $2.4 billion, making up the bulk of a fortune spanning education, hospitality and one of the world’s oldest tea companies.

Then, a week later, Carson Block came along.

In the crosshairs

Block’s investment firm, Muddy Waters, issued a report criticizing NMC’s accounts and disclosing a short position. Since then, Muddy Waters’s scrutiny has snowballed into a troubling scenario for Shetty that sheds light on his complex share arrangements and casts doubts about his networth.

His holdings in Finablr and NMC are worth $885 million, but Shetty’s fortune may now be just a fraction of that, depending on the size of his borrowings.

Filings this month show that Shetty pledged a quarter of his NMC stake against loans with First Abu Dhabi Bank and Zurich-based Falcon Private Bank. Two other shareholders may own half of his reported stake. Another lender - Al Salam Bank Bahrain - has already sold some of those shares to enforce security over a loan for Shetty, and NMC said Tuesday that First Abu Dhabi Bank sold another chunk earlier this month.

Forcing a closer look

The situation “seems to have gone beyond some of the issues that Muddy Waters focused on initially,” said Gavin Launder, a fund manager at Legal & General Investment Management, who owned shares in NMC until October. “The increased scrutiny has unearthed other issues.”

Law firm Herbert Smith Freehills has launched a review of Shetty’s holdings at his request, a spokesperson for the Indian-born businessman said. Shetty resigned Sunday as NMC’s chairman.

In its December 17 report on NMC, Muddy Waters hinted at potential overpayment for assets, inflated cash balances and understated debt. Shares of the UAE’s biggest private healthcare provider have since plunged 67 per cent, and the firm is now the focus of takeover speculation. The sell-off also spread to Finablr, whose stock has tumbled 64 per cent in that span.

NMC has disputed Muddy Waters’s claims, and the company hired former FBI Director Louis Freeh to conduct an independent review of the short seller’s allegations. Meanwhile, local regulators “are making inquiries with the relevant parties,” a spokesperson for the UK’s Financial Conduct Authority said.

More share pledges

To complicate matters, Shetty pledged another batch of NMC stock in 2018 as part of a so-called “equity collar arrangement” with Goldman Sachs Group Inc. that uses options to limit the impact from share moves. Last month, he also pledged most of his stake in Finablr to refinance a loan from the company’s takeover of foreign-exchange firm Travelex for about $1.2 billion.

BRS Ventures Investment, the UAE-based holding company for most of Shetty’s assets, doesn’t report consolidated financials, preventing a complete analysis of his networth. His other assets include a catering company, a waste-management firm and pharmaceutical business Neopharma, which four months ago was in the early stages of planning for an initial public offering.

He created Finablr two years ago to consolidate his financial brands before listing it on the London Stock Exchange in 2019.