The ghost of erstwhile drugmaker Ranbaxy seems to have come back to haunt Fortis Healthcare, as their promoter family’s Singh brothers tackle various financial dealings in which they are involved.
Fortis’ board meeting this week will seek to clarify on reports alleging that the promoters took about ₹500 crore out of the hospital company without going through due process. The board’s agenda already includes the resignation of Malvinder and Shivinder Singh as Fortis’ Executive Chairman and non-Executive Vice-Chairman respectively, scheduled to be discussed “in detail”.
Just last week Malvinder and Shivinder, sons of Ranbaxy visionary, the late Dr Parvinder Singh, had announced they would resign from the board of Fortis Healthcare. This followed the Delhi High Court order allowing Japanese drugmaker Daiichi Sankyo to proceed on an international arbitration award of ₹3,500 crore from Ranbaxy's former promoters. The promoter group holds 34 per cent in Fortis Healthcare.
Damage control exercise
Kritika Agarwal, Principal at international lawyers Majmudar & Partners, said: “The Singh brothers’ resignation signifies a damage control exercise and distancing from executive decisions of Fortis with an objective to seek investors, were the Singh family to divest their stake in the near future.”
In fact, corporate governance has gained significance in family-run listed entities in India looking to attract investors, making it imperative for family-run listed companies to get their house in order, she added.
Daiichi acquisition
Daiichi had bought the Singh brothers’ entire stake in Ranbaxy in 2008 for $4.6 billion. But that relationship turned sour after the Japanese company began feeling the heat of the USFDA’s regulatory action on Ranbaxy plants.
Daiichi hauled Ranbaxy to the International Court of Arbitration (Singapore), alleging that Ranbaxy’s promoters had concealed critical information during their buyout, something the brothers deny.
The tribunal awarded damages of about ₹2,500 crore (now revised to ₹3,500 crore including interest etc), a decision the Singh brothers contested at the Delhi High Court. (Daiichi eventually sold Ranbaxy to Sun Pharma for $ 4 billion.)
With the Delhi High Court now allowing Daiichi to proceed on the tribunal’s award, industry insiders expect the brothers to appeal in the Supreme Court.
“An appeal to the Supreme Court seems likely,” agreed Agarwal, adding that foreign investors being able to recover damages from Indian promoters was important, as it impacted investment decisions in India.
“It will also be interesting to see how the issue of financing by Fortis Hospitals to the promoter group entities is further clarified and if it impacts future divestment by the promoters,” she said.
Last week, Fortis Healthcare said its wholly-owned subsidiary Fortis Hospitals had deployed funds in secured short-term investments with companies in the normal course of treasury operations.
“These entities, as of the quarter ended December 31, 2017, have become part of the promoter group due to a shareholding change. Subsequently, the same loans have been recognised as related party transactions in compliance with necessary regulatory requirements.
“These loans are adequately secured and the repayment has since commenced as per the agreed payment schedule. The entire amount is expected to be repaid to the Company by end of Q1, FY19. The total value of the loans amounts to approx ₹473 crore,” it said.
Southern deal?
Meanwhile, Fortis has an enabling provision to raise ₹5,000 crore through a QIP (qualified institutional placement), among other methods. And the grapevine is abuzz with speculation of a possible transaction with a South-based hospital group.
Fortis recently also came in for flak over an exorbitant hospital bill that a couple had to pay after their daughter died of dengue.
Spotlight on Religare
But the shadow of uncertainty extends beyond Fortis. A news agency report quoted SEBI Chairman Ajay Tyagi as saying that financial services group Religare too would be “looked into”.
Shivinder is the non-executive vice-chairman of Religare and Malvinder is the non-executive, non independent director. The promoter group holds 13 per cent in Religare Enterprises. In the past, Religare has maintained it was not impacted by the arbitration award slapped on its promoters.
Religare’s board meeting comes up this week, rescheduled from last week. And Fortis Healthcare’s board will review the financial performance pending for the three months ended September 30, 2017 and December 31, 2017.
The moot point is if the two board meets will generate answers, or just more questions.