Dubai: After shares of NMC Health and Finablr saw sharp selloffs amid calls for higher scrutiny and governance, this could cast a shadow over future overseas listings by Gulf-based companies.
Shareholders recently lost a great deal of money on UK-listed NMC Health, after renowned short seller Muddy Waters criticized the company’s books and accused the UAE hospital operator of fraudulent statements. NMC’s stock price nearly halved, while Finablr’s stock dropped sharply after the news. (Abu Dhabi-based billionaire B. R. Shetty founded both NMC Health plc and Finablr plc.)
The allegations about NMC caused widespread alarm among investors because a year earlier, the Dubai-based emerging markets private equity giant Abraaj had collapsed after it was found guilty of deceiving investors and misappropriating funds.
The claims, which NMC outright denied, has called for renewed attention on corporate governance in the Middle East, where investors have complained about widespread related-party transactions, ineffective regulatory scrutiny and questionable valuations.
“At this point, we still do not see any clarity on NMC,” said Marie Salem, head of institutions at Daman Securities. “We need to see know exactly how the financials were drafted and how loans and debts were engineered and booked into the financials. Or else investors are not going to be satisfied.”
Leading Middle East companies have frequently looked to list shares abroad amid lackluster trading in local equities markets. Many such stocks found their home on the London exchange. Among them are NMC, Gulf Marine Services, DP World, Al Noor, Mediclinic, Network International and Finablr.
Analysts said as need for higher scrutiny rises, so do the risks for stocks listed on exchanges that have international exposure. “The fact that NMC is listed on the London exchange is not going to be “nice” to the management,” said Salem. “We are probably going to see some more of a risk on the stock, especially as the exposure they have is not just to GCC investors but also to everyone globally.”
This may prove risky for NMC founder B.R. Shetty, who, media reports said recently, was in the initial stages of listing his pharmaceutical business. Shetty’s son had revealed at the time that the listing could happen in the next two to three years and that it was not decided on whether “to return to London again”.
“We want to work on this for the next six months internally,” Binay Shetty said in October. The pharma unit Neopharma currently operates in about 50 markets.
Investor appetite for IPOs in London declined in 2019 against the backdrop of uncertainty surrounding Brexit. Finablr, the UAE-based holding company for brands including Travelex, UAE Exchange and Xpress Money, debuted in May and priced its IPO short of expectations. It will end largely flat this year.
Issues of transparency
Muddy Waters accused NMC’s of not disclosing that the contractor responsible for the renovation work at one of its key hospital projects “appears to be de facto controlled by B.R. Shetty”. Further, Muddy Waters found “some indications” that KBBO Group, “controlled by NMC insider Khalifa Bin Butti”, also had some involvement in the development. NMC has since refuted these claims.
“New related party transactions dent confidence in the company and companies like this,” said Jaap Meijer, research head at Arqaam Capital. “Such allegations should have wider ramifications for the region, and the region will need to sharply improve its corporate governance.”
NMC’s majority shareholders include Saeed Bin Butti, who holds a 17.4 per cent stake, and executive vice-chair Khalifa Bin Butti, with 14.7 per cent. Also, joint non-executive chair B.R. Shetty owns a 15.9 per cent interest and a 7.3 per cent stake belongs to a joint Bin Butti vehicle, Infinite Investments.
Allegations have put insufficient corporate governance in the region in the limelight, Meijer said. “It can be addressed with more independent board, enhanced transparency, integrity, accountability and particularly scrutiny of related party transactions, and a better alignment between management compensation and shareholders’ interests”
Another listing that recently faced similar criticism of transparency and governance was from international investors when they baulked at the valuation of Saudi oil giant Aramco’s IPO, an offering which eventually turned into a largely local affair, rather than a pan-global one.