Singh brothers quit Fortis Board
09 February 2018
Fortis announced Thursday that Malvinder Singh is resigning from his executive chairman role and Shivinder Singh is stepping down as vice chairman. The brothers cited the high court judgment relating Daiichi Sankyo which they previously controlled, saying their resignation would ''free the organization from any encumbrances whatsoever that may be linked to the Promoters''.
|Malvinder and Shivinder Singh|
Meanwhile, Bloomberg reported today citing people with knowledge of the matter, the brothers took at least Rs500 crore ($78 million) out of the publicly-traded hospital company Fortis Healthcare Ltd that they control, without board approval about a year ago,.
The funds were reported on the balance sheet of Fortis Healthcare as cash and cash equivalents, but the money was routed and placed under the control of the Singhs at the time, according to the sources.
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.
Meanwhile late on Thursday, the Singh brothers – also the promoters of Ranbaxy Laboratories - stepped down from the Fortis board in connection with a case against Japan's Daiichi Sankyo which they lost in the Delhi High Court (See: Ranbaxy's Singh bros must pay Daiichi Rs3,500 cr, rules HC).
It wasn't immediately clear what the Singhs may have used the funds for. Malvinder and Shivinder Singh have been working to pay back the money so the company can release its results, Bloomberg's sources 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 recognised as related party transactions and repayment has commenced, the spokesman said in an emailed statement.
India's Companies Act requires board approval for related party transactions, and when they exceed a prescribed size, approval from shareholders is required. Those who authorise 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 Rs5 lakh.
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.
In their joint resignation letter on Thursday, the brothers 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 organisation''.
In Indian businesses, the promoters effectively control a company and often hold the largest stake. The brothers own about 34 per cent of Fortis, according to exchange filings.
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 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 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.