NMC seeks debt repayment standstill as financial worries grow

NMC has appointed three top advisers to assist in its efforts to recover from a huge drop in value following financial mismanagement accusations. (Supplied)
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Updated 03 March 2020

NMC seeks debt repayment standstill as financial worries grow

  • In a big blow to investors, shares in the medical business have collapsed, wiping billions of dollars of value

DUBAI: NMC Health, the troubled UAE medical business, has asked creditors for an “informal standstill” on loan repayments, totaling around $2 billion, as fears grow for its financial survival as an independent corporate entity.

One leading rating agency, Moody’s, said it was halting coverage of NMC’s credit profile because it had taken a view that “NMC no longer has reliable access to funding.”
A spokesman for NMC declined to comment on reports that staff at its hospitals in the UAE were no longer being paid.
In a statement, NMC said it was “currently fully focused on safeguarding operational liquidity to continue funding existing operations throughout its various subsidiaries.”
The Abu Dhabi authorities, conscious of the risk from a collapse of the UAE’s leading health service provider as the global coronavirus outbreak widens, are believed to be keeping a close watch on the NMC situation and could provide emergency funding, according to one government source who declined to be identified.
The company — listed on the London Stock Exchange (LSE) but with most of its operations in the Middle East including a joint venture in Saudi Arabia — has appointed three top advisers to assist in its efforts to recover from a dramatic decline in its value in the wake of allegations about financial mismanagement and lack of transparency at the business.
US investment bank Moelis, international accounting firm PwC, and lawyers Allen & Overy have been named as “independent financial adviser, operational adviser and legal adviser respectively with immediate effect,” NMC said in a statement to the LSE.
“Moelis will support and advise on NMC’s discussions with its lenders, while PwC will assist on liquidity management and operational measures,” the statement added. Shares in the company, once one of the best performing stocks on the LSE, were suspended last week in light of ongoing problems.
NMC also revealed that its three biggest shareholders — founder B. R. Shetty and two UAE entrepreneurs Khaleefa Butti Omair Al-Muhairi and Saeed Mohamed Butti Mohamed Khalfan Al-Qebaisi — now own less than the 30 percent of its shares they once claimed.
NMC has been under pressure since last December, when Muddy Waters, an American investor known as an “activist” shareholder, published allegations about irregularities at the company, including issues with regard to asset values, cash balances, reported profits, and reported debt levels.
San Francisco-based Muddy Waters, led by Chief Executive Officer Carson Block, said it had taken a “short” position in NMC shares, meaning it was selling shares in expectation of being able to buy them at a lower price later on. “Shorting” shares is a recognized and legal mechanism in Western and Gulf markets.
Since the Muddy Waters announcement, NMC shares have collapsed by around 70 percent before they were suspended, wiping off billions of dollars-worth of value and exposing investors to big losses.
The revelation that the three main shareholders had less than 30 percent, triggered the request for a debt standstill. “In the event of a trigger, unutilized commitments are canceled, and outstanding participations become due and payable if so requested by an individual lender (subject to not less than five business days’ notice),” NMC said.
NMC added that it would anticipate a reappraisal of its external credit ratings. Moody’s said it would withdraw coverage “because it no longer considers the company’s audited financial statements to be reliable.”
NMC last year announced a joint venture with the Saudi General Organization for Social Insurance via its Hassana investment unit to ramp up its operations in the Kingdom, the largest health market in the Middle East.
The irregularities at NMC are being investigated by a committee headed by Louis Freeh, a former head of the US Federal Bureau of Investigation. Last week an interim report from the committee led to the resignation of Prasanth Manghat as CEO of the company, while the Chief Financial Officer Prashanth Shenoy was placed on “extended sick leave,” as shareholding discrepancies came to light.

Decoder

Shorting

Describes the practice of selling shares in expectation of being able to buy them at a lower price later on.


Make or break days for global oil ahead of OPEC crunch meeting

Updated 08 April 2020

Make or break days for global oil ahead of OPEC crunch meeting

  • OPEC, led by Saudi Arabia, were on Thursday scheduled to take part in virtual discussions with non-OPEC members, led by Russia, about a possible deal to revive the OPEC+ alliance
  • On Friday, energy ministers from the G20 nations, under the presidency of Saudi Arabia, will convene in another digital forum that will bring in the third part of the global oil equation – the US

DUBAI: The global energy world, in the midst of crisis as demand slumps to unprecedented levels due to the coronavirus disease (COVID-19) pandemic, faces two days that could make – or break – the oil industry for months to come.
Leading producers from the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, were on Thursday scheduled to take part in virtual discussions with non-OPEC members, led by Russia, about a possible deal to revive the OPEC+ alliance that fell apart in Vienna at the beginning of last month.
Then, on Friday, energy ministers from the G20 nations, under the presidency of Saudi Arabia, will convene in another digital forum that will bring in the third important part of the global oil equation – the US, currently the biggest oil producer in the world.
If no deal is reached from the two days of oil summits, the immediate prospect looms of a further fall in crude prices and, with global storage facilities already filling rapidly, the possibility of major exporters “shutting in” oil fields, jeopardizing future production.
Energy experts say the purpose of the meetings is two-fold: To reach agreement on how to limit the vast quantities of oil that are still being produced even as demand collapses; and to present some kind of united front in geopolitical terms in the face of the biggest economic recession since the 1930s.
The most visible immediate sign of any success from the meetings will be an increase in the price of crude oil on global markets. Brent crude, the Middle East benchmark, has lost nearly half its value in the past month.
The first aim – to try to balance oil supply and demand – is the more difficult. Global demand has fallen by at least 20 per cent from the usual daily consumption of around 100 million barrels, oil economists have calculated.
But, following the collapse of the OPEC+ deal that was putting a lid on supply, all producers have been pumping more crude. Saudi Arabia is producing more than 12 million barrels per day (bpd), a bigger volume than at any time in its history. All OPEC members, as well as Russia, have said they will increase output.
In this stand-off, US President Donald Trump intervened last week to say that he had spoken to Saudi and Russian leaders and that he “expected” a cut of 10 million, possibly even 15 million, bpd.
That looks like wishful thinking. For one thing, it would not rebalance markets. Anas Al-Hajji, managing partner of US-based Energy Outlook Advisers, said: “The amount of the cut is relatively small given the major drop in demand.”
There are also some difficult relationships to smooth over in the OPEC+ alliance. Saudi Arabia and Russia exchanged angry statements last weekend, each accusing the other of starting the oil price war. Iran, with big reserves but hampered by US sanctions from exporting in large quantities, said that it might not take part in the conference.
The choreography of the two meetings also presents hurdles. The US will not be present at the OPEC+ meeting, but American Secretary of Energy Dan Brouillette said he would take part in the G20 event.
Because it is a free-market industry, America cannot order its oil producers to reduce output, but most analysts are agreed any attempt to rebalance global supply would be impossible without a US contribution.
By going first, Saudi Arabia and Russia are “playing blind” without knowing what the Americans are thinking. Neither would want to agree big price-restoring cuts only for US producers – under big financial pressure at current levels – to swoop back into the market.
This week there have been some signs that the Americans are considering their own versions of cutbacks. The biggest US company, Exxon Mobil, said it would reduce capital expenditure on future projects by 30 percent; the US Energy Information Administration said oil production would fall by nearly 1 million bpd this year, in response to falling demand and financial pressures.
But even if the Saudis and Russians cut substantially alongside other big OPEC producers such as the UAE, and the Americans enter a long-term pattern of falling demand, it is still hard to see how cuts could reach the 10 million barrels Trump “expects,” let alone 15 million.
J. P. Morgan, the big US investment bank, said that it expects OPEC+ to come up with combined cuts of about 4.3 million barrels, most of that coming from Saudi Arabia, Russia and the UAE. “If it’s 4.3 million it only puts off the day when global storage gets filled completely,” said Robin Mills, CEO of Qamar Energy consultancy.
Storage facilities are nearly at the brim. Malek Azizeh, director of the premium facilities at the Fujairah Oil Terminal in the UAE, joked that he was going to hang a sign on the terminal gates: “Thanks, but no tanks.”