NMC: Salvaging a future?

To long time residents of UAE NMC and the name of B R Shetty were hallowed as a rags to riches story that Emaratis and expatriates both alluded to with pride. That success story has crashed to the ground amid allegations of fraud, deception, and left a gaping hole in the financial stability of the NMC group. Considering it’s future being torn between a forced liquidation and court administration leading to some semblance of normality it is important to understand how all this happened.

Only a few days ago B R Shetty was interviewed by a Dubai based newspaper and all he had to say was wish the newly appointed Chairman the best. The reporter did not bother to ask what B R, as he was commonly known, thought of the debacle of his mighty empire? How could $4 billion plus of loans not only not be recorded in the books of the company but the proceeds used for ventures of related companies? With Central Risk data on each borrower available did not the lending banks reconcile their exposures with the central risk data? How much of this lending by banks, especially in the UAE was name lending because it was BR and how could it go wrong? The Board of the company had stalwarts from auditing powerhouses who after retiring were serving on the Board of the company. Surely was their experience not available to create compliance within the company?

Bankers who piled in such colossal debt, $6 billion of it, of which $4 billion was unrecorded, cannot plead ignorance to the situation. We are not talking of a 10% misreporting of debt but a misreporting of over 200%? One of BR’s modus operandi was to cultivate bankers within different banks who were sold on the BR story and credit compliance may have been out aside to please the man. The authorities will need to do a massive forensic exercise into the lending process and credit decision making in the case of the exposure to BR and his group of companies.

This brings one to what is the solution. Someone once said that when banks have over lent to a company then they only hurt themselves in enforcing a liquidation. The total worth of the group is perhaps $2 billion with a forced sale value of perhaps less than half of that. Banks will lose a great deal by being stubborn about this settlement. A white knight buying the business, which in the long run can become solvent, is unlikely given the current situation.

Thus in my view the banks should agree to roll their exposures into a consolidated ten year loan with all lenders agreeing to inter-creditor agreements. A board including major lenders and industry experts should be created and a recovery path be worked out. Side by side actions to recover the funds diverted to related companies should begin in earnest and quickly. All $4 billion of unrecorded debts could not have just disappeared without creating an asset trail.

Lenders should be prepared to extend the ten year consolidated loan even further depending on the recovery process. It is important to get the patient out of ICU, don’t mind the pun, and given the critical role health care plays in the country and region it is likely down the road strategic long term investors including government entities will emerge. The health care model is good and it would seem that BR and his cohorts were smart not to cripple that part of the company. Why would they? It was the cash cow they could leverage to take unrecorded loans. While these remain allegations it would seem in time more details will emerge of the massive hole that has been left in the company.

If banks want to be short sighted and seek a forced liquidation I suspect that there will be enough eager investors to pick up select health care assets. However the realised values will be no where near the level of he current exposure. A forced sale might well be the eventual course that this saga will take, however of all the options it will more than likely be a very painful process.

Coronavirus and Mother Earth

In my late teens I faced a terrible flooding in my homeland, and there, surrounded by nothing but endless water, I learned a lesson that never fight nature. In the end nature will always have its final say. It was a lesson pretty much lost on me for most of my years till the past couple of decades. The 'noise' of global warming and the melting ice packs and the decimation of many of our animal and plant life made one think that we are perhaps not kind to Mother Earth.

Conspiracy theories aside, there is little denying that we as the human race has disrespected the very earth that has nurtured us and provided for us. We have dumped chemicals in the rivers, garbage in the seas, carbon dioxide in the air, wiped out the rain forests and done it all in one sweeping slogan for the well being of only our own kind. We ignored scientists when we were told much of what we are doing could well be irreversible, we assume that the seas bounties would never diminish and water will clean itself of the pollution we have imposed upon it.

Now after almost 20 days of an world lockdown caused by the coronavirus we need to pause and think if its more deeper and important message.

Covid 19, the deadly strain of the coronavirus, has crippled the world like no other plague, natural or man made disaster or calamity could do so. Airlines are grounded, businesses are closed, people around the globe are in lockdown, sporting events suspended and the economic impact of this virus will run into trillions of dollars. Indeed in terms of its mortality rate it is less dangerous, thus far, than the flu or the ebola virus. However its ability to spread silently across the world, at times dormant, with a speed that is frightening suggests that this virus has perhaps effected more people than we currently have tested.

One has to wonder if this is not Mother Earth's way of telling us that it needs to breathe again. To remind us just as hard as it is to breathe when inflicted by this virus the Earth too has found it difficult to breathe for a good 100 years. There are no ventilators the for the earth to use, no ICUs and no hand sanitizers to wash off the germs of man's greedy exploitation of the Earth. For almost a month now the planes are not dumping the CO2 in the atmosphere, and cars and trains are less numbers, allowing the streets to breathe again. Look up into the sky now and the smog is much less and you can see the majesty of the sky at night, if only we can take this message from nature and remember is for centuries ahead.

It would seem however, the fight against this virus is far from over. Yes some countries have made notable progress in their actions, (China and South Korea) and countries who have acted fast and decisively have not had a mushrooming of cases (UAE, Germany, France among some others) and those who have acted late will perhaps witness the worse still to come (USA, and UK). Then there is a whole host of nations in Africa and Asia where the testing facilities are simply not in place so we really do not know the extent and scale of the virus' presence in these countries. Added to the fact that we have seen countries with fairly well developed health care systems struggle under the enormity of this pandemic, Italy, UK, USA, one shudders to think how countries will weak medical care facilities and little or no infrastructure, like India, Pakistan, Bangladesh etc will cope should this virus spread widely in these countries.

On the medium term outlook we do not know enough of the virus not to be sure that even where there has been success in combating it, like in China, there will not be second wave of infections down the road. The vaccine to combat this virus is far from ready and even on a fast track it will not be before the year end that we could see a vaccine emerge. What this means is that the COVID 19 virus will be part of our lives for quite a few months and we should adjust our lifestyle to be safe rather than sorry. It might give us pause to reflect whether this is not Mother Earths was of getting back to us.