NMC’s Deepening Debt Crisis Heads to a Showdown in U.K. Court

Dubai Islamic Bank, Noor Bank Exposure to NMC at $541 Million

(Bloomberg) -- The crisis surrounding NMC Health Plc widened, as the struggling hospital operator rejected a call to be put into administration and United Arab Emirates’ banks disclosed more than $2 billion of exposure.

Shares of U.A.E lenders extended declines, highlighting how the collateral damage from the implosion of NMC and its sister companies is piling up. The next chapter opens Thursday when a U.K. court is scheduled to hear Abu Dhabi Commercial Bank PJSC’s bid to place NMC into the hands of administrators.

The chaos engulfing the largest private health-care company in the U.A.E. comes as the Gulf states struggle against the impact of low oil prices and the coronavirus pandemic. The central bank on Sunday unlocked new aid to support lending and liquidity, and slashed reserve requirements after business conditions worsened at a record pace.

“It looks like this is going to be a very painful episode for the banks,” said Joice Mathew, head of equity research at United Securities in Oman. “When the regional economy is suffering with the challenges of the coronavirus, low oil prices and declining asset prices, the sheer size of these exposures will add further pressure on the profitability of these banks and weigh heavily on their shares.”

NMC’s Deepening Debt Crisis Heads to a Showdown in U.K. Court

Citigroup Inc. analysts estimated that the impact on the five U.A.E. banks it covers would total about 23% of 2020 profit, according to a note on Monday.

Abu Dhabi Commercial Bank’s exposure is about $981 million, while Dubai Islamic Bank PJSC revealed a $541 million of exposure to NMC, risking almost half of its annual profit. Abu Dhabi Islamic Bank PJSC has reported extending $291.4 million to NMC.

London-listed NMC, founded by Indian entrepreneur Bavaguthu Raghuram Shetty, had seen its stock plunge before it was suspended from trading amid allegations of fraud. Most of NMC’s senior management has resigned since it revealed more than $4 billion of undisclosed debt. The company was also dropped from the FTSE 100 index.

With a market value of $2.4 billion and total debt of $6.6 billion, NMC now faces an investigation by the U.K.’s Financial Conduct Authority.

Administration Plea

Abu Dhabi Commercial Bank on Saturday said it applied to the U.K.’s High Court for administrators to take control of the company, prompting NMC’s new chairman to counter that such an action would endanger lives as the coronavirus spreads across the U.A.E. The lender, which hired investment bank Lazard Ltd. to manage the situation, said its combined exposure to NMC and Finablr Plc totaled $1.16 billion. Shares have declined for eight straight days.

“ADCB is putting its own interests above not only other creditors, but also the health and safety of U.A.E. residents amid an escalating pandemic,” NMC Executive Chairman Faisal Belhoul said.

The U.A.E. has so far reported 1,799 cases of the novel coronavirus, including 10 deaths.

Belhoul asked for patience from creditors, seeking a standstill on debt repayments to give the company time to prepare a recovery plan. In a later statement, he said he’s open to adding individuals to the board as recommended by Abu Dhabi Commercial Bank and other creditors, and accused the lender of disregarding the principles of the informal standstill accord.

Global Banks

Besides local banks, global lenders including HSBC Holdings Plc, JPMorgan Chase & Co. and Standard Chartered Plc also have large outstanding loans to the Abu Dhabi-based company. Some of the lenders are in talks to set up a committee to discuss ways to recover funds.

“It is surprising that banks, including big foreign banks, who had much better access to the financials of the company also got carried away by the euphoria,” said United Securities’s Mathew. “It being touted as one of the biggest success stories from the Gulf, banks were competing to get a share of the pie, and the risk oversight has resulted in high exposures.”

The widening scandal has also put a spotlight on the country’s central bank, which last month took the rare step of assuming control over UAE Exchange, which is linked to NMC through its founder Shetty and cross-ownership. As well as monitoring the company’s currency exchange and remittance operations in the Gulf state, it also supervises the nation’s commercial lenders. UAE Exchange has defaulted on about $300 million worth of foreign-exchange loans, people familiar with the situation said last month.

The U.A.E. last week replaced the central bank governor, choosing a former head of its biggest lender to take the helm. Abdel Hamid Saeed, who was previously in charge of First Abu Dhabi Bank PJSC, took over from Mubarak Al Mansoori, who had been in the job since 2014.

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