The UAE has weathered a rough 12 months with an increasing belligerent Iran, a collapse in oil prices, the demise of the once lauded Dubai based private equity firm, Abraaj Capital, and now the fall of two of the country’s most vaunted publicly listed companies, NMC Health (NMC LN) and Finablr Plc. (FIN LN). Just one year ago, NMC was a regional healthcare super star operating the largest privately held hospital group and chain of clinics across the GCC; Finablr was preparing for a hotly anticipated listing on the London Stock Exchange (LSE). Today, both companies’ stocks are suspended on the LSE and Abu Dhabi Commercial Bank (ADCB) has issued a criminal complaint against NMC’s majority shareholders and top management members; some of the named have fled the country. NMC and Finablr are closely tied as both companies share the same founder and both have been financially backed by a prominent Abu Dhabi family. The CEO of NMC and the CEO of Finablr were brothers.
Things began to unravel in December 2019 when Muddy Waters, an US based short seller and research provider, published a damning report on NMC accusing management of acquiring assets at unjustified valuations, mis-stating financials and failing to disclose off balance sheet debt structures. NMC’s stock plummeted as a result; Finablr’s stock fell in tandem given the cross-ownership at the majority shareholder level. By mid-January, NMC’s stock was suspended pending investigation around Muddy Water’s allegations and Finablr’s stock had collapsed due to a New Year’s Eve ransomware attack on their globally recognized brand, Travelex. Investors were also starting to worry the financial mis-management woes at NMC, which seemed to mount by the day, would be shared by Finablr given the family relationship between the CEOs and the fact the companies shared the same founder and majority shareholders. Today, Finablr’s stock is suspended, the company is nearly insolvent and day today management of the business has been taken over by the Central Bank of Abu Dhabi. Investor worries were more than justified.
As investigations proceed around the two business, shareholder class action lawsuits are filed and creditors initiate proceedings, one can expect to see these two fabled businesses broken up and put up for sale.
As expected, Abu Dhabi is taking this scandal very seriously. Both key shareholders of NMC Health and Finablr proudly displayed their ties and close relationship with the government; the government needs to send a clear signal that its patronage and its friendship can never again be hijacked as a cover for fraudulent behavior. The UAE has proved visionary in transforming its cities over the past several years. Abu Dhabi and Dubai have gone from being merely the key cities of an oil rich nation to international destinations for travelers across the world seeking its lavish hotels, restaurants, luxury shopping and natural beauty both in the desert and on the sea. The country has also undergone remarkable economic diversification away from oil and gas by investing in and welcoming entrepreneurs in media, technology, fashion, art, healthcare, science and alternative energy.
With weakened oil prices and continued regional instability given heightened tensions with Iran and on-going wars in Yemen, Syria and Libya, liquidity is tight across the GCC, including the UAE, and there is an increased demand for foreign capital. With depressed asset prices around the world due to the economic upheaval from the China Virus, global investors need to be given a good reason to invest in the UAE when rich opportunities exist in their home countries. A strong culture of corporate transparency and a well ordered system of repercussions against white collar crime is needed to entice international capital back to the UAE. In the past weeks, the UAE’s strong steps around putting the Central Bank in charge of Finablr and Abu Dhabi Commercial Bank’s (essentially Abu Dhabi Inc) public criminal complaint against leading shareholders, especially the Emirati shareholders, were the right paths forward for the government to take in its attempt to take control over what is essentially a massive fraud. The UAE has been a long-time friend and partner of the West; it needs to show it has a zero tolerance policy on corruption to keep Western investors keen to commit capital into its local businesses.