The Shetty Saga.

B R Shetty, for most people in the UAE, was the sort of story that people reveled upon. From a salesman to a billionaire over a four decade period; a story of a family business that listed on the London Stock Exchange and a social profile that attracted all the platitudes that one could shower. Then suddenly the rags to riches story got a small dent and before we know it a gaping hole emerged leaving Mr Shetty's net worth seriously depleted. Beyond the erosion of personal wealth is the longer lasting damage to the credibility and image of the persona that was commonly known as "B R".

In so far as a person's individual fortunes or misfortunes go there is little an outsider should comment upon. But this goes beyond the persona of Mr Shetty; his two kingpin companies are listed on the stock exchange and suddenly questions of inappropriate corporate governance and accusations of misleading the public and shareholders have surfaced. The verdict is still not out but the tell tale signs are showing up that indicate that all is not well in the Shetty empire.

Years ago a prominent Saudi family business icon, while speaking at Harvard University, made a point that when family businesses grow and expand into becoming regional or multinational conglomerates the challenges this transition throws out are unique and require a paradigm shift in the thinking of the family business owners. In the Middle East a number of companies owned by individuals grew into very large corporates and while some created the processes of corporate governance similar to large public joint stock companies, not all have been successful at this. Single person business empires have a tendency to attract "yes" men, and anyone not meeting the test of adoring admiration for the 'boss' is cast out. Creating an ethos of debate, discussion and disagreement do not come easy to these companies. Business owners, especially where they own all the shares of the business, also tend to believe that what they want will be done and few would advise them on the proprietary of the matter.

Family owned businesses are generally run in a manner where all key decisions are made by the owner himself. While advice and counsel may be available it is the will of the owner that eventually prevails. In some successful cases, and there are quite a few, the family head has created all the apparatus of governance and indeed in many cases an effective board of directors; the key word being effective. These companies stand out, even though family owned, it seems clear that the patriarch sets the policy and direction and lets the business professionals do the job.

Mr Shetty and the problems he is facing now need deeper analysis, and indeed a greater degree of transparency with regards to the dealings between the two public listed companies and his many other companies which hold their accounts private. At the heart of the problem lies the assertion that he and two other principal shareholders mis-stated their holdings in the companies. In addition, it is stated that a significant portion of the shares where held by banks and lenders for loans to Mr Shetty or his controlled companies.

The first allegation is indeed serious, especially if you have listed you company on a major stock exchange like the LSE. In family run businesses, especially in the past, it was not unusual for key shareholders to hold shares for each other, or indeed not report the changes if they swap shares between them. Once you are a listed company then any holdings have to be correctly reported. The errors do not seem to be a few shares that could have gone unreported and this is the crux of the issue for NMC. The Board of NMC has rightly denied the three key shareholders admittance to the Board meetings given these large discrepancies in their shareholdings. It is in the interest of all three to quickly issue a clarification of the status of their holdings. The auditors of the company should also come clean on how they overlooked such a crucial aspect of compliance to stock exchange rules.

Much has been said in the press about the fact that Mr Shetty has large borrowings against his shares and analogies have been created with Mr Elon Musk, who does also have borrowings against his shares is Tesla. The issue is not that you have borrowed funds against shares, this is normal. The issue is that as key shareholders and a board member these borrowings against shares have to be fully disclosed and the companies books must properly record any liens (which there must be) against the shares. The fact that every one is taken aback that the borrowing could be as high as $1 billion in the case of Mr Shetty is not surprising as it would seem the financial records of the two companies did not disclose this.

While Mr Shetty and Co have engaged various experts to investigate and clear up the air on these issues is a welcome sign. A forensic examination of shareholders register should not be a laborious affair and it would seem apart from the public, the Securities regulators in UK will be eagerly waiting for such a report. Whether what will follow will be a simple sanction against the shareholders or perhaps more punitive and legal actions remains to be seen.


At the core of the whole NMC share debacle lies the report by a company, Muddy Waters, which in its December 17th 2019 report issued wide ranging and serious accusations against NMC Health. The charges included insufficient disclosures on related party transactions, manipulation of the balance sheer and asset purchases at inflated prices. In a peer to peer analysis Muddy Waters concluded that the net margins boasted by NMC Health were, in their words are "too good to be true". The most damaging comment was "we are unsure how deep the rot at NMC goes, but we do not believe that its insiders or financials can be trusted."

While NMC has responded that the accusations are false, the battering in the markets in the backdrop of a respected firm like Muddy Waters comments has caused the damage that has far reaching implications. One of the key shareholders and the Vice Chairman off loaded over $500m of shares to settle debts against the shares (which in fairness he has reported), and while the core business may still have a good story to tell the damage to Mr Shetty is deeper than just NMC.

On the positive side the NMC business side has not seemingly been damaged by this fiasco and even if revenues and asset values are over stated the basic model of treating patients remains intact. This explains why there are rumors of predatory interests to acquire the business, which might be the fair outcome for the customers and employees of the business. However, it would seem rash for any buyer to dip into his wallet just yet. The air has to be cleared over not only the key shareholders but also a deeper probe into the allegations of Muddy Waters about the business itself. After all this whole pandoras box on shareholders only opened up after the Muddy Waters report, which did not question the shareholders but rather the business numbers itself.

In the larger scheme of things the NMC business model, while rattled may plod along, Mr Shetty may be able to restructure his debt and survive the crisis. The damage to his personal reputation will be more difficult to fix and certainly it is in his interests to push for correct disclosures as soon as possible. The longer the specter of wrong doing lingers out there the more damage will happen. The after taste will stay for a while and we can only hope that the way this resolves will restore confidence in the market place.