One of the common denominators between the Banking world and organized crime is the devotion they share for Omerta ( code of silence ). When it is not politicians diverting public attention away from real issues, you can trust dogged corporate presstitutes to flog the usual suspects, killing off public curiosity.The NMC Healthcare scam is a vivid example of the vile spin orchestrated by the untouchables to mask the mayhem ahead. After a week of turmoil, the NMC Healthcare scam with an estimated cost of USD 125 million has been swept beneath the bloody carpet. What’s there to hide?
At the very outset, we need to address the issue of public perception on the two main actors casted in this story. First of all, the SBM being a listed entity since 1995, should cease to be described as a property of the state. Though we acknowledge its being ruled over like a tribal panchayat of last century. In the same vein, the MCB should cease to be considered as a property of an illuminati sect, immune from public scrutiny. Let us remind those who think otherwise, the National Pension Fund (NPF) and the State Insurance Company of Mauritius Ltd ( SICOM) are major shareholders of the group.
NMC Healthcare scam – Brief
As per the most reported timeline of events, the scam was brought to light in mid-December 2019, when Carson Block of Muddy Waters published his report. The largest healthcare provider in the UAE. one of the biggest companies on the FTSE blue-chip index, had inflated cash balances, overpaid for its assets and understated its debt.
Bavaguthu Raghuram Shetty, founder of NMC healthcare, hailing from the Udupi region, famous for its cooks had baked the books fooling banks, regulators and investors. Upon denying allegations, NMC Healthcare appointed Louis Freeh, former director of FBI, to investigate the claims by Muddy Waters. Findings by Louis Freeh leaked out, state “a fraud on an industrial scale”.
NMC Health’s debt is now estimated to be around USD 6,6 bn, much higher than the USD 2,7 bn undisclosed debt revealed by Carson Block and miles ahead of the USD 2,1 bn stated in its accounts. NMC Healthcare has creditors spread over 75 debt facilities and 80 financial institutions of which 6 are our very own local banks ( MCB, SBM, Afrasia, ABC, BANK One and BCP).
MCB – The wife of Caesar
With Mauritian banks eager to play big, the pompous profile of NMC Healthcare and MCB ( Mr Best) being the lead arranger, what could possibly go wrong? Weeks after the outbreak, still all parties, banks, regulatory bodies and government have chosen to respect the code of silence, bringing back memories of February 2003 ( MCB/NPF). However, the stench from the rot, projects a much darker image.
Understanding the current situation would rely on, getting the timeline of events right and looking beyond the stated facts. Information sprayed by mainstream media relates to recklessness of SBM and Issuance of Credit Linked Notes by the MCB. (Let’s cast aside for a moment the disproportionate weightage and craft allocated to each of these news ).
From the listing particulars issued by CM Structured Finance (1) Ltd, fully owned subsidiary of MCB, we note that :
- a) The particulars contained therein are based on information available as at 15th August 2019,
- b) The credit relates to a loan agreement entered on 29 May 2019 between the Issuer, the other lenders and the Reference Entity ( NMC Healthcare),
- c) The use of proceeds is to provide debt financing to the Reference Entity ( NMC Healthcare) for an amount of USD 20,000,000,
- d) The Reference Entity is NMC Healthcare LLC, a company incorporated under the laws of Dubai,
- e) The guarantor is NMC Health PLC, a company incorporated under the law of England and Wales,
- f) The MCB dream team led by Vimal Ori (Chief Operating Officer of MCB Capital Markets Ltd) and Anish Goorah (Vice President of MCB Capital Markets Ltd) display an impressive knowledge of NMC Healthcare activities, value and prospect.
Let’s jump to the MCB Group Annual Report 2019, signed by Chairman Didier Harel & Chief Executive Pierre Guy Noel, which does boast of its achievements in the Non-Banking Financial Cluster. One of the transactions considered as “landmark” is Advisory services provided to “NMC Healthcare LLC the leading private provider of health care services in the Middle East, on a USD 30 million private debt placement “. Over the years it has become a tradition, for major corporates to use financial Media Powerhouses as yardsticks in their operations and even intelligence mining. One of them being Bloomberg often cited by MCB in its reports.
Now, why these details are pertinent to our understanding? Simply because the narrative hammered into our mind is ludicrous, Any cobbler down the street would feel suspicious if billionaire BR Shetty’s booming flagship company NMC Healthcare is in need of just over USD 100 m. Even more if the Indian National also enjoying British citizenship with accounts in over 50 prestigious financial institutions across the world turns to banks in Mauritius.
So, does this whole story costing USD 125 m to 6 banks and investors boil down to incompetency? Certainly not. Over the years we have seen skillful barristers snatching their clients from the claws of justice by invoking illness or even madness. Similarly, the new trend following heists, is to let the masterminds go scot free on grounds of incompetence.
What if the time line was absolutely wrong? What if 6 months prior to Carson Block’s report the writings were carved on the wall for the blind to see? What if 2 months before the listing, the MCB was aware of BR Shetty’s NMC Healthcare’s downward trend?
On 25th June 2019, Lisa Pham, Filipe Pacheco, and Kit Rees, 3 Bloomberg journalists published an article with the header “ Billionaire Shetty Hit by Double Blow in Stock Market “ Here is an extract “ Bavaguthu Raghuram Shetty is having a bad year in the stock market. Persian Gulf hospital operator NMC Health Plc, where he’s co-chairman and a major shareholder, has plunged as short sellers targeted the company amid concern its governance is lacking, it’s taken on too much debt for acquisitions and its accounting is too opaque. Shares of Finablr Plc, the payments processor he founded, are trading below their initial public offering price since the company listed in London last month. The double whammy comes amid growing investor unease with indebted, acquisitive companies …..” . The news and particulars from Bloomberg had been relayed by at least 6 reputed regional & international business media. The article had triggered a turmoil and is what precisely sparked the suspicion of western investors. So how come the super advisors from MCB could not see the elephant in the corridor? With so many precautionary notes about “credit event” specified in the listing documents and agreements, any decent advisor would at the least cross verify all submissions by both NMC Healthcare LLC and NMC healthcare PLC.
But the fact that all other banks willingly walked the plank makes it even more fascinating. Does the MCB wield so much influence as to be trusted blindly or has there been collusion in pulling one of the biggest heist of our history? We do have a speck of an answer from the early observations made by former FBI director Louis Freeh who unearthed traces of false accounting and kickbacks in the securing of funds for keeping the company alive. So it would be fair to write off suspicions of incompetence or inadvertence and more meaningful to look for the highly influential pied piper who drove 6 banks into the Arabian sea?
Government & Institutions – Rotten beyond repair
In light of the above, the next logical question can only pertain to the role of the government & regulatory institutions. Did they miss out by incompetence or were they part of the casting in the heist ? The response to the Private Notice Question by Mahen Seeruttun, Minister of Financial Services on inclusion of Mauritius in the High Risk Third Countries issued by European Commission, does provide us on how knowledgeable the government can be.
The Bank of Mauritius (BOM) and the Government of Mauritius had been warned about systemic risk posed by both MCB and SBM. For years the International Monetary Fund (IMF) has been prescribing corrective measures and blowing the whistle on imminent instability. The Technical Assistance Report focused on Strengthening Bank Resolution & Crisis Management Framework submitted in June 2018 does provide an insight of today’s scenario.to the fact “There are no cross-border arrangements in place to address recovery and resolution planning or the coordinated implementation of resolution schemes” .
If minister Seeruttun did bother to browse through the reports, he would have noticed it was well the current prime minister who is blamed by officials of IMF for lack of seriousness and unprofessionalism. “Established under the BOMA Section 55A, FinStab is chaired by the Minister of Finance and Economic Development and composed of the Minister for Financial Services, the governor of the BoM, the CEO of the FSC, the Director of the Financial Intelligence Unit, and the Financial Secretary. It assumes the general function to “regularly review and ensure the soundness and stability of the financial system.” However, FinStab has been largely inoperative, although it met once in November 2016”
And most importantly IMF noted that “Conditions for providing ELA in the Bank of Mauritius Act (BOMA) have to be revised to limit moral hazard, and a formal policy and operational framework has to be adopted. ELA should be subject to strict conditions to protect the BoM balance sheet and minimize moral hazard. A formal policy and operational ELA framework to clarify the operational aspects and lay out the basic principles governing its provision (circumstances for its use, solvency requirement, eligible collateral, terms, and conditionality) has to be adopted “
The issue of Moral Hazard gained momentum since the 2008 crisis. Though it sounds ridiculous that a whole curriculum had to be developed to teach what’s right & what’s wrong to top professionals flying high from the world’s best universities, moral hazard is a concept the liberal system had to come up with, to reconfigure their own settings. Right from professionals within private banking / financial institutions, going through technocrats of the public sector, up to regulators & government, they all make decisions affecting the lives of everybody without having to shoulder any risk. The current turmoil around the Covid 19 bill is a perfect example of how decision makers are capable of gambling with the lives of people without the least iota of accountability. Yet the emphasis IMF weighs on the importance of limiting moral hazard and protecting the BOM balance sheet is loud and clear. It would also be sheer foolishness to ignore the responsibility of The Stock Exchange of Mauritius ( SEM) in many of financial crimes committed in the country, though its role would be that of the gloves used to shield the fingerprints. In the case of CM Structured Finance (1) Ltd, its obvious SEM had deliberately hibernated leaving investors vulnerable.
Since posing as a challenger to the MCB in the late 80’s SBM has always altered between the role of scapegoat and sacrificial lamb. The mainstream media can be trusted to make a whole banquet out of the slightest mishap and yet turn a blind eye on broad daylight robberies at other banks. However political interference in government run companies is the primary cause of malpractices. Let’s recall how the SAJ led government dished out hundreds of millions from SBM back in 1995 after the Singapore company AMCOL withdrew from Roland Maurel’s Guibies Project. How about the loans granted to various companies of Rakesh Gooljaury in 2003 coincidentally after his close friend Pravind Jugnauth was sworn in as Finance minister . Surely all parties who threw wide open the particulars of BAI directors would invoke banking secrecy, if asked to make public all toxic loans from other banks, SBM has been forced to acquire since 2015. The involvement of Mahmadally Burkutoola as independent director and chairman of Credit Committee of SBM in allocating USD 195 million is an evidence of the hazards government run companies are forced to endure. Mahmadally Burkutoola’s punishment is even more grotesque. He was appointed chairman of Maubank, fielded as candidate in 2019’s legislative assembly elections and as per our information will soon be appointed at the helm of an important state owned insurance company.
Having lost its most brilliant cadres over the years and replacing them with a bunch of headless chickens SBM will remain a soft target for long time to come. Could there be a more miserable communication strategy than what we have seen during the crisis? As a matter of fact, it would be right to even doubt if the Head of communications was even aware of an orchestrated run on the bank. Should the Holdings and its members share the guilt ? Without any doubt. According to the organisational design, the SBM Holdings should be represented on the SBM Bank ( Mauritius ) Ltd and most of its operations do come from the bank. During the course of research work leading to this article, the name that popped up more often from the tightest of lips is -Nayen Koomar Ballah. Pleading ignorance would add further disgrace making Pulitzer prize winner, Alice Walker’s statement “The most common way people give up their power is by thinking they don’t have any” even more relevant.
Media – The hinge of propaganda
In a few days, we will be commemorating the 95th birth anniversary of one of the most prominent civil rights fighters the world has known. Throughout his struggle and till his death he stood convinced. “The media is the most powerful entity on earth. They have the power to make the innocent guilty and to make the guilty innocent, and that’s power. Because they control the minds of the masses.” – Malcom X
In its issue of 17th April 2020, the Financial Times reports “NMC scandal proves a boon for global advisers” and a further read describes how the unfurling scandal is lucrative for consultants, with boutique investment banks coming in to advise the company’s management, shareholders and creditors. Well, the logical question that arises to any sound mind would be, “ weren’t dozens of banks, consultants and advisers involved in the heist ?”. This is precisely the sort of freshly baked stories mainstream media keeps selling every minute. To the extent of dominating in content, every pitch or resume. Articles and media coverage lead to recognition which in turn is churned into business. The next time anybody brags about an award, remember NMC Healthcare LLC won the Gold Stevie Award 2019 ( the world’s premier business awards).
With its mercenaries and snipers, our local media landscape is no different from the Pravdas elsewhere. When they are not busy dancing to the tunes of corporates or PR firms, they orchestrate the vilest of attacks feasting to the bone on fallen preys. The string of articles earlier this month on the SBM’s announcement of its provision for impairment triggered a run on the bank and could have led the kneeling country deeper into the ground. There are reasons to believe in devilish intent behind every article. One of the articles by L’Express, states no loan had been sanctioned by the MCB in favour of NMC healthcare LLC. If that was true, then how come the brilliant team of Gilbert Gnany, Ronald Lam Yan Foon, Vimal Ori and Anish Goorah fail to sell their wonder product to their own bank? Or was it a toxic product meant only for other banks ?
Another article from L’express confirms MCB has made provision of USD 2 000, 000 as impairment for the same transaction. Should we understand, that MCB had rolled out USD 2 m ( equivalent to the expected commission) ? Can it be true that other banks poured in 20 times the amount of a major player like MCB ? How come the auditors of SBM identified the issue and the bank provided for impairment in their December 2019 report while MCB group auditors PWC did not find anything during the same period ?
Adding stupidity to ignorance, the same article from L’express refers to a cheque of USD 20 m deposited as security. Does that imply the bankrupt NMC Heathcare deposited a bank cheque of USD 20 m to borrow USD 20 m and pay 4.50% interest p.a ? Even better, The newsroom which vehemently accuses another bank of fraud, amateurism on an investment, describes the lead arranger of the transaction as “ Victim”. An outstanding evidence of how the media is split between fear and adoration when it comes to the powerhouse of oligarchy.
No wonder the common man having invested his savings in stocks has the strange feeling of being cheated. No media or analysts will refer to the non-performing loans of the MCB which as at June 2019 amounted to MUR 10,559,000,000 and allowances for credit impairment of MUR 7, 686,000,000. No editorialist would find it startling the bank paid MUR 197 361 000 to the directors (subsidiaries and excluding those on the board of MCB Group). And above all one of the beneficiaries and directors bears the name of Philippe Forget, once captain of the caravel.
Ahead – The Brewing Mayhem
The big players have been adamant on venturing into structured finance which is extremely complex and often singled out as the main cause of various setbacks. Still, the issue remains with poor risk management, inaccurate ratings and an array of other causes. The absence of high caliber seasoned professionals owing allegiance to integrity would be the primary deficiency of the sector. With more bad news lined up dark days loom ahead for the banking sector. The drop in oil prices would affect trade finance activities of MCB, while risky acquisitions and operations in Madagascar will stir more commotion for SBM. The other banks do have their own barn of dead horses to flog.
Early March 2020, prior to confinement when Minister of Finance, Renganaden Padayachy stated out of the blue, we need to protect the banks, it does indicate we were standing on the brink of an abysmal crisis. With the country’s leading bank MCB having an exposure in excess of MUR 250 billion spread across various sectors and out of which MUR 23 billion allocated to the tourism industry, the only chances of survival would be a government bailout. Those voicing their frustration over the provisions of the Covid 19 bill would be even more gutted when they would learn that most of the funds raise will end up in the caravel.