Mumbai: India’s tycoon Singh brothers took at least Rs500 crore ($78 million) out of the publicly-traded hospital company they control without board approval about a year ago, people with knowledge of the matter said.
The funds were reported on the balance sheet of Fortis Healthcare Ltd. as cash and cash equivalents, but the money was routed and placed under the control of the Singhs at the time, according to the people. Fortis’s auditor, Deloitte Haskins & Sells LLP, refused to sign off on the company’s second-quarter results until the funds were accounted for or returned, the people said, asking not to be identified as the information is private.
It wasn’t immediately clear what the Singhs may have used the funds for. Fortis founders Malvinder Singh and his brother, Shivinder, have been working to pay back the money so the company can release its results, the people said.
A spokesman for Fortis said the company loaned Rs473 crore to “certain corporate bodies in normal course of treasury operations" as of July 2017, and in the third quarter of the current financial year those companies subsequently became part of the Singhs’ corporate group. The loans have since been recognized as related party transactions and repayment has commenced, the spokesman said in an emailed statement. The company also denies that its auditor has refused to sign the second-quarter results.
Fortis announced on Thursday that Malvinder Singh is resigning from his executive chairman role and Shivinder Singh is stepping down as vice chairman. The brothers cited a court judgment relating to the sale of a drugmaker they previously controlled, saying their resignation would “free the organization from any encumbrances whatsoever that may be linked to the Promoters."
Companies Act requires board approval for related party transactions, and when they exceed a prescribed size, approval from shareholders is required. Those who authorize a related party transaction without the proper approvals can be punished under Indian law with up to a year in prison or a fine of as much as Rs500,000.
A Deloitte spokesman directed questions to Fortis, saying the auditing firm can’t comment on specific client matters due to confidentiality obligations.
Fortis, India’s second-largest hospital chain, announced on Thursday it would report both its second- and third-quarter results on 13 February. The company reported cash and cash equivalents of Rs540 crore as of 31 March, compared to Rs140 crore in the previous year.
The efforts to address the issue with Fortis’s balance sheet come amid mounting legal and financial woes for the Singhs, third-generation magnates of a family that traces its fortune back to pre-Independence India. Now, the brothers are looking to sell chunks of their health care-to-finance empire as their main holding company grapples with a debt load that stood at around $1.5 billion in its 2016 fiscal-year filing, and has already seen one default.
“The promoters have found themselves in a pickle not for the first time," Amit Tandon, managing director of Institutional Investor Advisory Services, told BloombergQuint. “It seems to be happening with remarkable regularity as far as they are concerned."
In Indian business parlance, the promoters effectively control a company and often hold the largest stake. The brothers own about 34% of Fortis, according to exchange filings.
In their joint resignation letter on Thursday, the siblings requested the board “look into all inter-group transactions and distance the Promoter Group from Fortis Healthcare Limited in a manner that enables continuity of the operations of the organization."
News of the Singhs’ resignation sent shares rising as much as 25% on Friday, the biggest intraday gain since at least 2007.
Tandon said the response from the Singhs raises more questions rather than offers answers for the market. “If they believe all is right and kosher, then why resign?" he said.
The brothers are also facing a lawsuit brought by New York-based private equity firm Siguler Guff & Co., which accused them of “siphoning" money out of another publicly-traded firm they control to help them manage their personal debts, according to documents filed with the Delhi high court.
The small business lending arm of the Singhs’ financial services firm, Religare Enterprises Ltd, made 21 loans to a number of seemingly independent companies that routed at least $300 million back to closely held Singh firms on the same day, according to a central bank investigation of the company’s fiscal 2016 books filed in Delhi as part of the suit. The Singhs have said the allegations are “completely baseless" and said they have responded to them in court.
Fortis said in an exchange filing it delayed releasing its results for the quarter that ended on 30 September because its board was occupied pursuing a buyout of a Singapore-listed real estate trust that has acted as a kind of landlord to Fortis’s hospitals. On 16 January, Fortis announced the exclusivity period for its negotiations of the proposed Rs4,650 crore deal would be extended to 12 February.
The siblings faced a setback last month after a Delhi court ruled that $550 million awarded against them in Singapore is enforceable in India. A Singapore tribunal has said the Singhs must pay damages and interest to drugmaker Daiichi Sankyo Co. for concealing critical information during the sale of their generic drug firm, Ranbaxy Laboratories Ltd, to the Japanese company in 2008. The Singhs have denied any wrongdoing and are appealing the tribunal’s ruling. They have said they are reviewing the recent Delhi court decision.
Supreme Court has ordered the Singh brothers not to sell or dilute their shareholding in Fortis until it decides on Daiichi’s petition to place a longer-term halt on asset sales by the Singhs. The siblings are contesting that ruling. Bloomberg