Fortis Healthcare CEO Bhavdeep Singh resigns ahead of IHH taking charge

As the new management of Fortis Healthcare (FHL) is all set to take charge after the Competition Commission of India (CCI) gave nod to the merger with Malaysian healthcare firm IHH Healthcare Berhad, FHL Chief Executive Officer (CEO) Bhavdeep Singh has put in his papers.
Singh has tendered his resignation on Thursday citing professional and personal reasons. He, however, will continue in his current capacity till his succession planning is crystallised. Singh had joined Fortis as CEO in July 2015. This was his second stint with the hospital chain as CEO. This is the second senior-level resignation after Gagandeep Singh Bedi, CEO of FHL, quit in August.

Announcing his decision to leave the company, Singh said, “I believe that the right time to make this transition is now. After two very challenging years, the company is now on a stable platform and can look forward to the future with optimism."
He said his role with Fortis did not allow him to spend time with his family. “The reality is that the challenges at the company over the past couple of years have not allowed me to spend any time with my family and that is something I need to do now. Also, I am very pleased that business recovery is well under way with solid improvement demonstrated during Q2 and with October results reflecting the best performance we have had in the past 12 months. So, with the turbulence behind us, the business once again looking up and with IHH poised to take over the reins at Fortis as a majority shareholder in the coming weeks, the time for me to transition is now,” he said.
In his earlier interviews, Singh indicated the Fortis management’s protests around the related party transactions (that came under the market regulator's scanner) were overruled. In October, Securities and Exchange Board of India (Sebi) directed Malvinder Singh, Shivinder Singh, and eight other entities to jointly repay Rs 4.03 billion, along with interest, to Fortis Healthcare in three months. The Sebi found Fortis Healthcare, through its subsidiary, was giving inter-corporate deposits (ICDs) to three companies to the tune of Rs 4.73 billion from 2013-14 onwards. These transactions were not classified as related party transactions.
Sources, however, indicated the resignation comes in at a time when the management control of the firm is changing and the new promoters are unlikely to have ‘legacy issues’ from the previous management. Singh was considered to be close to the erstwhile promoters Malvinder and Shivinder Singh. FHL’s diagnostic arm SRL’s CEO Arindam Haldar, however, has a shorter stint at the firm.
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Fortis maintained that Singh has been instrumental in building required capabilities in the organization and delivering value through implementing clinical outcomes measurement and reporting and championing the cause for organ donation and much more.
“During his tenure, Singh led multiple due diligences and a series of capital raising initiatives earning positive feedback from all who worked with him. He engaged with internal and external partners ensuring that no stone remained unturned in steering the firm through unprecedented times,” Fortis said.
Announcing the decision, Ravi Rajgopal, chairman of board of directors, FHL, said: “He has been a pillar of strength at Fortis and has steadfastly led from the front. He has consistently demonstrated a high-level of business acumen, an exceptionally strong work ethic, and a very strong commitment towards building and sustaining strong people relationships built on a strong foundation of trust.”

Investors want higher price in Fortis open offer; IHH unlikely to oblige

Investors in Fortis Healthcare are said to be negotiating for a higher open offer price ahead of the company’s extraordinary general meeting (EGM) on Monday.
On July 13, Malaysia’s IHH Healthcare Berhad outbid the Manipal-TPG combine to win the race to acquire Fortis Healthcare (FHL). According to IHH’s binding offer, it will invest Rs 40 billion in the cash-strapped hospital chain via preferential allotment at Rs 170 a share.

Many feel that the stock has the potential to see an upside and can touch Rs 240-250 levels within a year of the IHH deal going through. So they want to wait and not tender their shares in the open offer. The stock closed at Rs 142 on the BSE on Friday.
Sources close to the development said the Malaysian company was unlikely to raise the open offer price as it felt it was a fair price to offer exit to investors at the moment. In fact, IHH was likely to go ahead with the open offer even if the shareholders voted down the company's proposal to acquire a stake in FHL in the EGM, claimed sources.
Investors, however, are hoping for a higher price. Anurag Aggarwal, who holds nearly 100,000 shares of FHL, said he would not sell his shares at Rs 170 each. “I purchased these shares at Rs 230 apiece. I will purchase more shares, instead of selling. The time is right for those who want to buy the Fortis share and hold it for a long duration,” he said.
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Another retail investor told Business Standard he did not feel Rs 170 a share was a lucrative offer to give his shares away.
Even institutional shareholders like YES Bank, which holds around 15 per cent of FHL, were unlikely to tender their entire shareholding in the upcoming open offer, said market sources. An e-mail sent to YES Bank went unanswered.
YES Bank is the single largest shareholder in Fortis. Other major shareholders include East Bridge Capital Management, York Capital Management Asia, and Jupiter Asset Management Asia.
Sources close to the development said YES Bank, which was not a strategic investor in FHL (it had acquired the stake by converting debt into equity by selling the pledged shares), might look to sell part of its stake.
Investors want higher price in Fortis open offer; IHH unlikely to oblige What Fortis needs is a strategic long-term partner like IHH Healthcare to stabilise its business and address its immediate liquidity funding needs. We believe our offer is compelling, as shareholders have the opportunity to participate in the long-term value creation of Fortis and/or participate in the open offer,” said an IHH spokesperson.
The open offer commences on September 7 and closes on September 24, 2018.
IHH will invest Rs 40 billion in FHL through preferential allotment of shares (to its wholly-owned subsidiary Northern TK Venture), giving it a roughly 31 per cent of the company’s total voting equity share capital. After that, the Malaysian healthcare major will undertake a mandatory open offer for 26 per cent of shares at Rs 170 a share.
If the open offer is fully subscribed, IHH will have 57 per cent shareholding of FHL. The transaction will result in a change of control of the company. IHH, through NTKV, will be classified as the promoter of the company and have the powers to nominate directors, representing two-thirds of the board.
Analysts felt that there was a possibility of the Fortis stock going up in the coming months. “With a credible promoter, and liquidity concerns taken care of, FHL’s performance will improve. We are bullish on margins and liquidity. The stock may touch Rs 230-240 in a year,” said Sanjiv Bhasin, executive vice president, markets, India Infoline. He also felt the open offer might find takers from banks and financial institutions who have encumbered shares that they held as collaterals, as it offers them a fair exit from a stock that has under-performed.

Fortis reports consolidated net loss of Rs 191 million for Dec quarter

Fortis Healthcare on Thursday reported a consolidated net loss of Rs 191 million for the quarter ended December 2017 against a profit of Rs 4.5 billion year-ago periods.
The company also reported its September quarter net loss at Rs 236.1 million after it had sought a 15-day extension to declare earnings for the second and third quarter of the current financial year citing statutory auditors' inability to complete the audit before the stipulated board meeting.
Although the company presented its earnings report, the auditor to Fortis Healthcare, Deloitte Haskins & Sells LLP, said it had not performed an audit.
It said the interim results have been reviewed by other auditors whose report has been furnished to them by the management.
"Because of the significance of the matters... relating to the ongoing investigations... we were not able to obtain sufficient appropriate evidence to form a conclusion on the statement," it added.
The results of Fortis Healthcare come amid controversy and scrutiny of the company's finances over alleged regulatory lapses in transfer of funds to some promoter-linked firms.
In an early morning regulatory filing, the company presented its earnings for the second and third quarter of the ongoing fiscal.
Total income during the December quarter stood at Rs 11.6 billion.
It was Rs 11.9 billion in the same quarter previous fiscal.
For the quarter ended September 2017, income was reported at Rs 12.3 billion.
Meanwhile, shares of the company were trading flat at Rs 159.75 apiece on BSE.
Fortis Healthcare landed into trouble after a media report claiming that the company's promoters, Malvinder Mohan Singh and Shivinder Mohan Singh, took at least USD 78 million (about Rs 5 billion at current exchange rate) out of the publicly-traded hospital company they control without board approval about a year ago.
The company said its wholly-owned arm Fortis Hospitals had deployed funds to the tune of Rs 4 billion as secured short-term investments to group firms of its promoters.
The move attracted regulatory scrutiny as Sebi began examining the issues following resignation of the two promoters from the board.
The company said the loans are adequately secured and repayment has since commenced as per agreed payment schedule.
The company's statutory auditor said Sebi is conducting an investigation in respect of secured short-term investment of Rs 4.7 billion made by the wholly-owned subsidiary of the parent, and pending completion of the investigation, it is unable to "conclude on effects, if any of the outcome of the same on the financial results, state of affairs, cash flows, and operations of the group".

Fortis under Sebi scanner after Singh brothers 'take out' Rs 4.73 billion

Market regulator Sebi on Saturday said it is examining the issues surrounding Fortis Healthcare, which has landed in a controversy over alleged regulatory lapses in transfer of funds to some promoter-linked firms.
"We are examining the Fortis issue," Sebi Chairman Ajay Tyagi told reporters after a board meeting of the regulatory body on Saturday.
Fortis Healthcare was issued notices by the stock exchanges on Friday following a media report claiming that the company's promoters, the Singh bothers, took at least $78 million (about Rs 5 billion at current exchange rate) out of the publicly-traded hospital company they control without board approval about a year ago.
Replying to the notices, Fortis Healthcare said its wholly-owned arm Fortis Hospitals had deployed funds to the tune of Rs 4.73 billion (Rs 473 crore) as secured short-term investments to group firms of its promoters.
The company, which earlier on Thursday announced that its promoters Malvinder Mohan Singh and Shivinder Mohan Singh have quit the board, also said the loans are adequately secured and repayment has since commenced as per agreed payment schedule.
Amid all these developments, the company's stock price zoomed by nearly 18 per cent on Friday following another unconfirmed media report about a possible merger of Fortis Healthcare with Malabar Hospital.
The media reports have also said that the company's auditor, Deloitte Haskins and Sells LLP had "refused to sign off on the companys second-quarter results until the funds were accounted for or returned".
However, the healthcare chain refuted these allegations.
"We categorically deny the allegations that 'Auditors have Refused to Sign the Accounts for Q2'.
The results for the Q2 could not be tabled before the Board for approval and the same was communicated to the stock exchanges on November 14, 2017," it said.
Stating that audit review process for results of both second and third quarters were in progress, the company said those would be presented before the board at their meeting scheduled on February 13, 2018.
Earlier on Thursday, the company had informed stock exchanges that the Singh brothers had resigned as directors from the company's board following a Delhi High Court order upholding the Rs 3,500 crore arbitral award in favour of Daiichi Sankyo.
Individually, Malvinder Mohan Singh and Shivinder Mohan Singh held 11,508 shares each in Fortis Healthcare Ltd as on December 31, 2017 out of total 51,86,17,631 shares of the company.
However, the total promoter group holding through different entities is 34.43 per cent.

Delhi Hight Court asks Singh brothers to pay up Rs 35 bn to Daiichi

Malvinder Singh and Shivinder Singh, promoters of Fortis Healthcare, need to pay Japanese drug maker Daiichi Sankyo Rs 35 billion ($550 million), awarded in arbitration over the $4.6-billion sale of Ranbaxy Laboratories to Daiichi in 2008.
The verdict was pronounced by the Delhi High Court’s single-judge bench of Justice Jayant Nath. He rejected all objections raised by the Singh brothers and said the arbitration award was in line with Indian laws and policy. The ruling can still be appealed in a two-member panel of the Delhi HC or the Supreme Court.
The Japanese firm had moved the Delhi HC to enforce the arbitration award announced by a Singapore tribunal, which had found that the brothers had concealed critical information at the time of selling Ranbaxy to Daiichi. The brothers had contested that ruling in the Singapore court and also opposed implementation of the award in India.
Daiichi has also been appealing to the Delhi HC to stop the brothers from selling their assets to ensure they have enough funds to pay up the arbitration award. The brothers have been asked not to dilute their assets.
The court said Daiichi can claim the amount from the brothers and their companies but not from their children, who were also named in the suit filed by Daiichi.
RHC Holding, the holding company of the brothers, said, “Today’s judgment has given partial success to some of the sellers of shares of erstwhile Ranbaxy (respondents). The court has held the award to be unenforceable against the minors. However, we are disappointed with the ruling against the rest of the sellers.
After studying the order in detail, the respondents will decide on further course of action.”
Daiichi didn’t immediately respond to Business Standard’s email seeking comments. However, P&A Law Office, a firm representing the Japanese company issued a statement. “Daiichi will now file an application with the court seeking execution of the award with steps such as the sale of shares and assets held by companies controlled by the Singh brothers including Fortis and Religare,” said Amit Mishra, a spokesperson of the law firm.
While shares of Religare Enterprises fell 3.1 per cent to Rs 43.20 a share on the BSE on Wednesday, Fortis Healthcare declined 5.3 per cent to Rs 139.1 a share. The benchmark S&P BSE Sensex dropped 0.2 per cent on the day.
The brothers have been under pressure to sell assets to deal with debt at RHC Holding. The credit rating on RHC’s long-term non-convertible debt was downgraded to “default” by India Ratings & Research in July after RHC missed scheduled coupon payments on its non-convertible debentures the previous month and reflects the group’s impaired ability to service debt, as per the rating agency.
The sale of Ranbaxy to Daiichi took place just months before the US Food and Drug Administration banned imports from two of the generic drug maker’s Indian plants. That same year, the US department of justice launched a probe, eventually resulting in a guilty plea by Ranbaxy and a $500-million settlement for selling adulterated drugs. The bothers were not named in the Ranbaxy probe.
In 2012, Daiichi filed a case with an International Court of Arbitration in Singapore, accusing the Singhs of concealing and misrepresenting critical information about the US probes into Ranbaxy. In 2016, the tribunal decided the Singhs should pay Daiichi both damages and interest. Daiichi sold Ranbaxy to Sun Pharmaceutical Industries for $3.2 billion in 2014.