NMC creditors approve restructuring plan that allows 34 companies to exit administration

Creditors of NMC Healthcare have approved its proposed deeds of company arrangement (DOCA) restructuring process, a move that allows 34 companies of the UAE’s biggest healthcare provider to exit administration.

NMC secured approval for its restructuring proposal from 95 per cent of its creditors on Wednesday, the company said in a statement.

The companies that will exit administration in Abu Dhabi will continue to operate the NMC Group’s core businesses. NMC's business has rebounded in the first half of this year as revenue beat expectations despite coronavirus headwinds. Gross revenue for the period for its UAE and Oman businesses reached $611 million, 10 per cent more than the company's projections.

NMC Healthcare said it will transfer its key assets to a new NMC group. However, NMC Healthcare will remain in administration in order to pursue potential litigation claims on behalf of itself and the other DOCA companies. Proceeds from such litigation will be distributed to the relevant creditors, the company said.

Joint administrators Alvarez & Marsal have been pushing creditors, owed more than $6.4 billion by NMC Healthcare, for a restructuring of the business, which will lead to $4bn of its debts being wiped in return for equity instruments under the DOCA process.

The debt pile of the company will be reduced to $2.25bn and DOCA involves a mechanism that allows them to exit and generate more funds than the sale of distressed assets may yield.

Once confirmed by Abu Dhabi Global Market courts, implementation of DOCA will take between three to five months to complete the transfer of shares and assets of the DOCA companies as well as obtaining clearance from the appropriate government entities. Following this, the 34 operating entities will exit administration, NMC said.

“The successful handover of 34 NMC companies of the NMC group to full operation as going concerns under new ownership will be a major landmark for NMC and the Joint Administrators,” said Richard Fleming, managing director of Alvarez & Marsal Europe and Joint Administrator of NMC.

“This historic vote will welcome an era of a new NMC that is able to do what it does best … with its operational future safeguarded.”

NMC Healthcare, which grew from a single clinic into the UAE's biggest healthcare provider, ran into trouble after a 2019 report by short seller Muddy Waters accused the company of inflating its assets and understating its debt.

An independent investigation uncovered more than $4.4bn of previously unreported debt, leading to the company being placed into administration in April last year.

In an update to lenders in April this year, Alvarez & Marsal said it had received about $6.4bn worth of creditor claims to date, including about $6.3bn from a group of 136 financial creditors. Administrators have also identified a further $650m in potential claims from another 10 financial creditors.

Abu Dhabi Commercial Bank, the UAE's third-largest lender by assets and a significant creditor to NMC, said in a separate statement that it expects to receive "approximately 39 per cent of transferable exit instruments in a new $2.25bn facility, a debt claim sized to the expected future value of NMC".

Participants in the exit instruments will receive interest payment for debt facility, which will ultimately be repaid from the proceeds generated through sale of some underlying assets at a later stage.

"There are further possibilities for the participants [the banks] to benefit from any rise in the valuation of the NMC business as well as any recoveries made by the company from its ongoing litigation strategies," ADCB said.

In April, NMC said it is selling Eugin (Luarmia and Boston IVF) to Fresenius Helios for an enterprise value of €430m ($525m). There are more NMC assets that could be sold off as the company seeks to off-load non-core businesses to focus on operations in the UAE and Oman, Ben Cairns, Alvarez & Marsal London-based managing director for restructuring, said in August.

While Alvarez & Marsal is still investigating NMC's affairs and people responsible for its financial troubles, the company's founder, BR Shetty, is pursuing separate legal action. In July, he filed a case in New York courts accusing former directors, two banks and the company’s former auditors of conspiring to “artificially inflate the financials of NMC” and other group companies.

The case by Mr Shetty and his pharmaceutical business, Neopharma, alleges that the eight defendants “conspired to create fictitious invoices for products and supplies purportedly sold by group companies to NMC in order to generate inflated sales and revenue figures for NMC’s financial statements” over a six-year period.

This led to shareholders suffering estimated losses of $10bn as the result of “massive financial fraud”, according to the suit.