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Mon 6 Apr 2020 07:46 AM

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NMC crisis widens as UAE banks reveal $2bn-plus exposure

Most of NMC's senior management has resigned since it revealed more than $4bn of undisclosed debt

NMC crisis widens as UAE banks reveal $2bn-plus exposure

Abu Dhabi Commercial Bank on Saturday said it applied to the UK’s High Court for administrators to take control of the company.

The scandal surrounding NMC Health Plc widened, with United Arab Emirates’ banks disclosing more than $2 billion of exposure and one of its biggest creditors calling for the struggling hospital operator to be put into administration.

Shares in Dubai Islamic Bank PJSC ended limit down on Sunday after the lender revealed it has $541 million of exposure to NMC, which risks erasing almost half of its annual profit.

Abu Dhabi Islamic Bank PJSC also closed by the maximum allowed after revealing it extended $291.4 million to the UAE’s largest private healthcare provider. Abu Dhabi Commercial Bank PJSC also slumped after it asked a court to put the company into administration.

The collateral damage from the implosion of NMC and its sister companies is widening, dragging in the UAE’s top lenders, central bank and healthcare system. The fallout comes as banks battle to contain the impact of low oil prices and the global coronavirus pandemic.

The central bank on Sunday unlocked new aid to support lending and liquidity, and slashed reserves requirements after business conditions worsened at a record pace as the virus shut down much of the economy in March.

“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.”

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, and the company has lost its elite status as a member of 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 UK’s Financial Conduct Authority.

Administrators

Abu Dhabi Commercial Bank on Saturday said it applied to the UK’s High Court for administrators to take control of the company, prompting the company’s new chairman to counter that such an action would endanger lives as the coronavirus spreads across the UAE.

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 dropped 4.6%, extending its losing streak to a seventh day.

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

The UAE has so far reported 1,799 cases of the novel coronavirus, known as Covid-19, 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 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 that’s 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.

The UAE 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.

Emirates NBD exposure includes Emirates Islamic Bank; DIB's exposure includes Noor Bank; ADIB has additional $31 million sukuk exposure to NMC Health

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