Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
I genuinely think NMC is performing as expected, Muddy Waters has this wrong. The business case for health care in UAE and the wider middle east is strong and it remains a growth sector. It's also probably one of the reason the senior creditors are even considering a debt restructure.
The junior creditors will want to go after whoever was responsible and if the debt was fraudulent then that wouldn't be NMC shareholders.
The creditors, at any point, can force NMC into administration but clearly this is the nuclear option and is worst case scenario for everyone. It would mean the senior creditors get back some of their money, junior creditors get 0, bond holders get 0 and shareholders get 0. This being the case, senior creditors will not want to do this nor will they want to take over NMC because it would mean all debt still needs to be serviced which includes the junior debt. Junior creditors will not want to force administration because they would get 0 and they wouldn't then be able to go after whoever was responsible for the fraudulent borrowings. My guess is that the junior debt is the fraudulent debt and each of the 80 odd banks have an average exposure of about 55M.
It's quite telling that NMC have announced they are looking to sell the distribution arm for liquidity purposes because they wouldn't be allowed to do this without approval from the senior creditors. It would suggest that debt restructure negotiations are progressing.
What might happen with the debt? I don't believe the senior creditors will take a hair cut and I don't think they have to. Their debt alone is manageable by NMC and if NMC continues as a going concern then they will get 100% of their money back. The junior creditors will have to take a big hair cut for the fraudulent loans but I don't think they have any other option. They can then go after whoever was responsible for the fraud. If that was Shetty, then Neopharma is up for grabs as are all his real estate in Emirates. My guess is that he probably has other interests too. If the Bhuttis were involved then they too would be fair game etc. At this point the junior creditors have been very quiet, they probably don't want to be associated with NMC until a clearer picture emerges around who was untimately responsible for the fraud.
Also, I think NMC may sell the Saudi franchise. Reading an interview with an ex senior manager, NMC's due diligence in Saudi Arabia was not quite good enough and the franchise is not doing as well as they thought it would.
Based on current information and my read into what's happening I'm still of the opinon that NMC will come out of suspension at a diluted price. But, one has to remember the price was already heavily discounted before it went into suspension.
Depending on the order of the debt, some creditors may not even get a fraction. If all the fraudulent debt was subortinated to the legitamate debt then they could end up with 0 if the company goes into administration. Obviously and in the event NMC is sold, this also depends on the purchase price.
Folks please don't get confused with the appointment of the new CRO, Matthew Wilde. He is not another CEO. The purpose of the CRO is to craft consensus among all stakeholders around a common outcome in relation to the debt. Any structural problems a company still has remains the problem of the CEO.
(Discovered from minimal research so happy to be corrected on all)
DubaiWorld: Debt was restructured and company still on going.
Carillion (Dubai): Debt was restructured and projects on going.
Al Jaber Group: Debt was restuctured, company still ongoing but has structural problems.
OW Bunker: Matt Wilde was appointed as joint liquidator and not to restructure debt.
It is still too early to tell how the debt at NMC can be restructured because it's unknown how much of it was legitamate and what exactly can be done with the fraudulent debt without seeing the agreements between the parties. I suspect they'll be combing through the agreements and this will take time. NMC could also sell some non core assets to pay down debt. The combination of a debt haircut and lengthened term, clawing back money through seizing Shetty's assets (Newpharma), and selling non core assets, could lead to a leaner profitable NMC that is able to continue and come out of suspension with shareholder value.
For balance though, If all debt does indeed have to be serviced by NMC and no monies can be clawed back from those who comitted the fraud, then I don't see how NMC can survive with any shareholder value. I expect in this instance that NMC would go into administration and buyer would be found. If earnings are correct then there could be a bidding war leading to a purchase price greater than the value of the tangible assets + goodwill but shareholders would get nothing.
Rastuss, just to clarifiy, I'm not looking for a surprise. I expect, based on current information, that the debt can be restructured, parts written off, parts reclaimed and or cancelled in a way that shareholder value is preserved (with a dilution) and shares unsuspended. I note your position is that the total debt burden will result in the company being sold to gov for nominal value and so almost 0 shareholder value.
Rastuss, I respect that you have come to that conclusion and I trust you will respect my different conclusion, based on current information. I would say to those who are Long NMC and are somewhat panicked right now that things have not got much worse and there are still a lot of unknowns before anyone can declare anything one way or another. However, based on current information and in the absence of clarity, shareholder value, I think, has already been diluted without knowing to what extent.
Rastuss, so you think the money need to be paid back to Daman?
Rastuss, money received from Daman, last month, was NMC's own money due to them by insurance payouts, no financial support form gov. I don't think this arrangement can last forever and will be a struggle even in this month. NMC really need to sort out liquidity and if salaries are paid then can be seen as a positive in this regard.
The size of the "fraudulent" money suggests to me that the banks were complicit in some way or other.
HeresHopin, I take your points and you may well be correct but I've taken a different view. The news that's come out certainly isn't good and I have tried to apply some reasoning behind it. The main point of the RNS was to declare the current debt pile and add some clarity to some of it...and it's confimed the appointment of a CRO. Nothing more. You will note that the company has not folded yet and Emirates have not felt the need to rescue it, perhaps yet, but time will tell.
Shareholder value will undoubtely by diluted. If NMC are a sound business, in the absence of the fraudulent debt, better fund governance and transparent financials, the share price could do well from where it opens. Lot of ifs and buts until there is more clarity around all the debt and how they restructure and the final 2019 financials.
MrD, it genuinely is still too early to panic. We don't know what the debt structure is and how the liabilites will stack up in the case of fraud. All the banks that have lent money fraudulently will be sweating buckets. How the legitamate lenders react in the next couple of days will be telling. If salaries paid on time then it would suggest an improvemnt in liquidity from last month end and perhaps progress in debt restructure negotiations. If NMC is genuinely not viable then the longer this goes on the less the banks will get and they will be fully aware of this. The fact that NMC still exists is quite telling.
MrD, in my opinion I'm still not panicked and still don't expect 0. NMC are still flushing out the cr*p before you start hearing of the rescue plan. I suspect some poorer assets will be sold to pay down debt, some debt will be written off (I suspect some debt to be under the table handshakes and won't stick), Shetty's shares will be repo'd and Neopharma seized (0.7 to 1Bill), the cheque guarantees 50Mill should be cancelled.
Adding some clarity. It appears Moelis and PwC are trying to make sense of the debt. This is calculated straight from what they have said today (in Billions):
Known Facilities 0.3
Facilities since Jun 0.4
Convertible Bond 0.3
Sukuk 0.4
Unapproved debt 0.8
TOTAL ACCOUNTED 2.2
Current Total 6.6
TOTAL UNACCOUNTED 4.4
"The Board of NMC has received another update on 23 March 2020 advising that the Group's debt position is currently estimated to be around $6.6 billion, including the $360m convertible bond and $400m sukuk."
Were the bond and sukuk included in the previous 5Bill? If not then the newly discovered amounts would be less.
"Company has verified a further $0.3 billion is currently outstanding which relates to facilities which were known to the Board as at June 2019"
Also was this included in the previous 5Bill?
That would be the scenario where the company was liquidated. Things really depend on the debt structure and how much NMC can write off or reclaim from whoever commited the fraud or wherever the money ended up, Finablr, Neopharma, Shetty, Manghat. Can a fair value on shares be agreed with lenders and Shetty's shares repo'd to pay down some debt. All will be considered by Matt Wilde. The current board will try and preserve as much shareholder value as possible.
It's probably a good time to revisit what a debt restructure entails. This is straight from Investopedia and sums up quite nicely:
What Is Debt Restructuring?
Debt restructuring is a process used by companies to avoid the risk of default on existing debt or to take advantage of lower available interest rates. Debt restructuring can be carried out by individuals on the brink of insolvency as well, and by countries that are heading for default on sovereign debt.
KEY TAKEAWAYS
The debt restructuring process can be carried out by reducing the interest rates on loans or by extending the dates when a company’s liabilities are due.
A debt restructure might include a debt-for-equity swap, when creditors agree to cancel a portion or all of the outstanding debt in exchange for equity in the company.
A nation seeking to restructure its debt might move its debt from the private sector to public sector institutions.
How Debt Restructuring Works
Some companies seek to restructure debts when they're facing bankruptcy. They might have several loans are structured in such a way that some are subordinate in priority to other loans. The senior debtholders would be paid before the lenders of subordinated debts if the company were to go into bankruptcy. Creditors are sometimes willing to alter these and other terms to avoid dealing with a potential bankruptcy or default.
The debt restructuring process is typically carried out by reducing the interest rates on loans, by extending the dates when the company’s liabilities are due to be paid, or both. These steps improve the firm’s chances of paying back the obligations. Creditors understand that they would receive even less should the company be forced into bankruptcy and/or liquidation.
Restructuring debt can be a win-win for both entities. The business avoids bankruptcy and the lenders typically receive more than what they would through a bankruptcy proceeding.
Types of Debt Restructuring
A debt restructure might also include a debt-for-equity swap. This occurs when creditors agree to cancel a portion or all of their outstanding debts in exchange for equity in the company. The swap is usually a preferred option when the debt and assets in the company are very significant, so forcing it into bankruptcy would not be ideal. The creditors would rather take control of the distressed company as a going concern.
A company seeking to restructure its debt might also renegotiate with its bondholders to "take a haircut"—where a portion of the outstanding interest payments would be written off, or a portion of the principal will not be repaid.
A company will often issue callable bonds to protect itself from a situation in which interest payments cannot be made. A bond with a callable feature can be redeemed early by the issuer in times of decreasing interest rates. This allows the issuer to readily restructure debt in the future because the existing debt can be redeemed early by the issuer for lower ra
Rastuss, I agree with MrD, it's very doubtful that Daman paid salaries directly to NMC staff. The sharing of staff banking information would be unprecedented. I expect monies were released into a new bank not previously associated with NMC or they were able to negotiate with the banks to allow use of the money from Daman. Also, it's not entirely clear how much more use NMC can make of receiving early payments from Daman. Paying salaries on time this month would be a sign of improving liquidity. I think the banks will be very nervous about NMC going into liquidation.
I suppose technically it is. What I'm getting at is that NMC are currently undergoing negotiations with their creditors, being able to pay all salaries on the due date with none or minimal "technical" support would lend support to the idea that those negotiations are going well, I also think generally the markets would take it well. I'm not sure how being able to pay staff salaries on time can be seen as anything but positive under the circumstances.
I have been meaning to post, for some days now, some of my thoughts around the debt pile and will try to get to this soon.
Rastuss, NMC has not received any third party support as of yet that I am aware of, happy to be corrected on this. The payments made by Daman were monies due to NMC payed earlier than usual and I expect bypassing the banks that have frozen NMC cash accounts. If NMC are able to negotiate the release of their cash and so able to pay salaries then I expect that would be a positive signal. I hope that makes sense.
MrD, all eys on 25th Mar. If all salaries are paid on time then it'll be a strong positive signal to the market. If not, then it's not the end of the world but won't be good and extent of negative perceptions will be how well NMC can explain themselves, bond price will be telling.
IRO the ADR, I would be inclined to ignore it for now. There'll be no risk apetite for the ADR of a suspended stock in the current climate....people will be looking for value elsewhere, clearly there are a lot better/more buying opportunities.