Scion Industrial Engineering

NMC lenders tally losses as ADCB taps Lazard to recover funds

UAE Exchange, set up by the founder of the embattled hospital operator, defaulted on a loan of about $300 million, to a group that includes Goldman Sachs Group Inc., JPMorgan Chase & Co., Barclays Plc and Commercial Bank of Dubai PSC, according to people familiar with the matter. At the same time, it emerged that Abu Dhabi Commercial Bank PJSC hired Lazard Ltd. to advise on its more than $1 billion of exposure to the Abu Dhabi-based company.

Underscoring the cash crunch, NMC is braving the market mayhem triggered by the coronavirus pandemic to sell its distribution business, people familiar with the matter said. NMC is seeking as much as $300 million for the unit, they said.

London-listed NMC, founded by Indian entrepreneur Bavaguthu Raghuram Shetty, has seen its stock plunge before it was suspended from trading amid allegations of fraud.

Its chairman and chief financial officer have resigned since the company revealed more than $4 billion of undisclosed debt, and the company has lost its elite status as a member of the FTSE 100 index.

With a market value of $2.4 billion and total debt of $6.6 billion, NMC and its founder face an investigation by U.K.’s Financial Conduct Authority.

‘Worst time ever’

“The amounts of billions of dollars at times like these are inexcusable especially if they were used for personal loans instead of being used by the business,” said Mohammed Ali Yasin, chief strategy officer at Al Dhabi Capital Ltd. in Abu Dhabi. “What was disclosed about the debt, undeclared debt of NMC by the majority shareholders is really coming at the worst time ever. At a time of this health crisis, a company like NMC and other hospitals should be blossoming and growing in value.”

NMC started unraveling in December, when short seller Muddy Waters Capital LLC alleged it had overpaid for assets, inflated cash balances and understated debt. The company uncovered evidence of suspected fraud and debt that had been used for unknown purposes. The shares have been suspended since February.

Abu Dhabi Commercial Bank is seeking to recover some of the funds the state-owned lender provided to NMC and financial services firm Finablr Plc, people familiar with the matter said on Wednesday. Representatives for Lazard and ADCB declined to comment.

The bank’s potential $1 billion exposure could wipe out 80% of its estimated profit for 2020 in a worst-case scenario, Citigroup Inc. analysts Rahul Bajaj and Ronit Ghose said in a note on Wednesday. Shares extended losses to the fifth consecutive session. They have dropped the maximum allowed 5% in the past four trading days, and are down 44% this year.

‘Big headache’
Besides Abu Dhabi Commercial Bank, other lenders include HSBC Holdings Plc, JPMorgan and Standard Chartered Plc, the people said. Some of the lenders are in talks to set up a committee to discuss ways to recover funds from NMC, according to the people. Representatives for the banks declined to comment.

“The expected write down on NMC will be a big headache for the commercial banks, which lent to them in large volumes, given that they will be negatively impacted by the fallout from lower oil prices,” said Richard Segal, a senior analyst at Manulife Investment in London. “Anecdotal evidence suggests they are also being pressed to extend new credits to priority sectors to relieve the burden on taxpayers.”

Branching out
After establishing NMC, Shetty branched out into financial services, with those interests now rolled into London-listed Finablr. Problems there led to its UAE Exchange unit to default on a foreign-exchange loan of about $300 million, according to people with knowledge of the matter. The company, founded in 1980, became one of the largest remittance operators in the Middle East by mainly catering to Indian expatriate workers in the Gulf.

The United Arab Emirates central bank last month said it is overseeing the UAE Exchange’s operations as Finablr, also the owner of foreign-exchange businesses including Travelex Holdings Ltd., prepares for potential insolvency. The firm has warned that its board couldn’t accurately assess its financial situation and its chief executive officer and chief financial officer have stepped down.

A representative for Finablr referred queries to the UAE central bank, which didn’t immediately respond to emailed queries. Representatives for Goldman Sachs and JPMorgan declined to comment, while representatives for Commercial Bank of Dubai and Shetty didn’t immediately respond to requests for comment.

Trading unit
With cash holdings dwindling, NMC is working with an adviser to gauge buyer interest in its NMC Trading unit, according to the people. NMC Trading distributes products including Nestle SA food and beverages, Pfizer Inc. medicine and Unilever Plc personal-care products across the United Arab Emirates.

Deliberations are at an early stage, and there’s no certainty they will result in a transaction, the people said. A representative for NMC declined to comment.