RE: Nmc13 Feb 2020 23:29
London, 13 February 2020 -- Moody's Investors Service, ("Moody's") has today downgraded NMC Health plc's (NMC) corporate family rating (CFR) to Ba2 from Ba1 and the company's probability of default rating (PDR) to Ba2-PD from Ba1-PD. Concurrently Moody's has downgraded the rating of the $400 million USD-denominated trust certificates (or sukuk) of NMC Healthcare Sukuk Limited due 2023 to Ba2 from Ba1 and placed all ratings under review for downgrade.
RATINGS RATIONALE
The downgrade to Ba2 is mainly driven by governance considerations and reflects Moody's view that the recent suspension of two members (Dr. Shetty and Mr. Khalifa Butti Omair Yousif Ahmed Al Muhairi) of the board of directors reflects weaknesses in corporate governance. Dr. Shetty, the founder of NMC, and Mr. Khalifa Butti have played an important role in the success of NMC and its expansion to over $2 billion in revenue in 2019. Their suspension creates uncertainty around the strategic direction of the company where concerns have also developed over whether effective controls over the operations including the integration of acquired businesses have been adequately overseen and enforced. Moreover, recent events have reduced Moody's confidence that the company will be able to prioritize an appropriate focus on reducing leverage, also raising concerns over the broader impact on its ability to access capital, at least in the short term. As of LTM June 2019, NCM's Debt to EBITDA was 4.7x which is high compared to the guidance for the Ba1 rating of 3.5x.
Furthermore, the review for downgrade reflects uncertainty surrounding the actual ownership of the company which could trigger a change of control and lead to a debt acceleration based on the definitions in the company's syndicated loan facility agreement.
On February 10th 2020, Dr. B. R. Shetty, a major shareholder and a board member in NMC, informed the company that he is conducting a legal review in order to verify his shareholding in the company. Dr. B. R. Shetty, alongside, Mr. Khalifa Butti Omair Yousif Ahmed Al Muhairi have both been suspended from the board of directors. If the legal review determines that the combined ownership of NMC by the KBBO group (which aggregates the holdings of the Butti family) and Dr. Shetty is below a certain threshold, this would trigger a change of control clause under the company's syndicated loan facility agreement which also includes NMC's $400 million revolving credit facility, which matures in February 2021. Prior to this announcement, the KBBO group and Dr. Shetty reported a combined ownership of 42.7% down from 58.7% following the unwinding of a series of margin loans. A change of control clause would only be triggered if any party, excluding the KBBO group (which aggregates the holdings of the Butti family) and Dr. Shetty, were to hold more than 50% of the company's shares or if the KBBO group and Dr. Shetty were to hold less than a certain threshold under the syndicated loan facility
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