....and lack of cash reserves.
Rastuss, I did say that the convertible bond would reduce FCF but the supply chain finance is serviced by other Shetty businesses and so would not be on the Cashflow statement. A lot rests with the Freeh report and updated financial statements, unfortunately I don't think the immediate liquidity issues can wait that long or even for a rights issue placing. MW could very well be correct about asset values but a lot companies overstate them through clever accounting and NMC wouldn't be alone in this. It's the degree to which it has happened that is more relevant. We already know the balance sheet is in worse shape because of the supply chain finance.
Castaway, can't comment on Shetty trying to hawk his shares. Don't know anything about that.
In relation to MW targeting NMC. I suspect they have a screening tool that allows them to identify companies before doing in depth research. An EMEA company with better than peer ratios and with a high multiple valuation would be a good start.
Castaway, I've assumed Net Income is as reported but you make a good point re cash and I've balanced that out with the cash injection from Mubadala assuming it's at the same level.
I don't think Shetty was desperate for cash. It's been established there was a margin call from the banks who dumped the collateralised shares to cover. Either because of the collapse in share price of Finablr or NMC.
The company was suspended because they found inconsistencies in the financials. It meant a fair assessment of valuations couldn't be made.
Mubadala - minimal risk and maximum pay off. Usual caveats that this is highly speculative.
It's fair to say any buy out of NMC would require shareholder approval and they would want at least fair market value. Obviously until the corrected financial statements come out it this is unknown and potentially could be very low, let's take Jefferies last price target of circa £3.5. Mubadala could quite easily afford this, but, in buying out they would also be charged with funding all short term liquidity requirements and taking all of NMC's outstanding liabilities onto their own books. Any intrinsic value in NMC thereafter would only be an unrealised gain on Mubadala's books until such time as NMC is re-floated. One would be correct in thinking for Mubadala the cost is quite insignificant but holding a company directly comes with the addtional company specific risks, which would have to be bourne out by them. I also think there's the risk of NMC becoming like a public company as it would be ultimately owned by the government. All this in mind I think it represents more risk than they need to take for a significant pay off. Also, company sales can take time so doesn't address the immediate liquidity issues. If NMC are able to secure short term liquidity from elsewhere, obviously at a cost, then the chance of Mubadala securing a low ball purchase price diminishes as too does the requirement for NMC to be taken over.
The other option is for NMC to sell Mubadala newly created convertable bonds with a strike price agreed between the parties. This would give NMC the immediate cash they need. For Mubadala, a preferential rate of interest on the bond and option to take a large equity position in the future for a price set now. Should NMC collapse then In terms of risk, Mubadala would be ahead of equity holders and be entitled to a portion of the fair value of tangible assets. I think this option would be a more suitable level of risk reward payoff for Mubadala.
I've purposefully avoided commenting on NMC going into administration as things can get complicated.
What does this mean for existing shareholders? The debt would have to go on the balance sheet meaning comensurately, FCF and EPS would go down, EBITDA would stay the same. However, it would delay share dilution until the bond matures. Even adding the Supply Chain Finance, FCF, EPS and EBITDA should remain the same because debt service payments for this won't be on the cashflow statement, however, investors will value adding both items and I think £6 is not unreasonable based on £9.35 before suspension. However, I think many of us will agree that all else being equal, without the governance issues and additional debt, £9.35 was cheap when NMC was trading roughly double at the start of the year. This suggests a value buy and significant upside potential in mid to long term. For Mubadala any price above £20 could mean they quaruple their initial investment depending on a £5 strike.
Marcus, I absolutely agree with your first point but the ramifications for retaining any share holder value could be catastrophic.
At this stage I am fairly convinced Shetty and Manghat were acting independently of the Bhuttis.
It takes time to sell bricks and mortar especially if you want fair value for it. By that time the staff will have walked out. The liquidity problem is genuinely very immediate. They could perhaps take out secured borrowing against the value of their hospitals but not sure if the hospitals are free from security. The advisers will be looking at all avenues.
Back of the fag packet calc gave me £30M rather then the correct amount of £3M. By my calculation, hopefully correct this time, the daily cost of continued operations is about £4.5M per day. Would be good if someone could verify.
Apologies I got the share buy back value wrong
I see. The short term liquidity problem does appear to have reared its ugly head again but the company is at a different stage of its business cycle. If the cash was not so severely depleted it probably won't be an issue in terms of continuing operations. Clearly with the power of hindsight the share buy back in Dec was a big mistake. That money now would have been very handy indeed.
I thought I would try to explain the detail around why I think covid is not good for NMC’s bottom line. Please base with me on the detail as I’m not a specialist in healthcare but I hope I’ve applied some common sense.
We can all agree that NMC has a finite number of beds for them to treat people. For illustrative purposes let’s say they have 100 beds which can be thought of as their capacity. Furthermore in normal circumstances they’re probably at around 80% capacity, so 80 beds used up and 20 beds free. Of those 80 beds let’s say half, 40 beds, are taken up by people with serious health conditions i.e. cancer and other disorders. Clearly these people are going nowhere. The remaining 40 beds are used by the high margin business, elective, non-life saving treatments. This can be plastic surgery, IVF and the like.
From what I understand of covid, there is no known treatment for it. I guess people with serious symptoms are managed by given IV, pain killers and they’re watched over by nurses/ doctors. This does not strike me as high margin business.
For NMC to make extra revenue, they could utilise the extra capacity they have, 20 beds. But, should there be an extreme spread in the virus then you can probably assume the high margin business would be the first to be reduced to make room for the covid sufferers.
It's dated 2011.
Good spot Pioneer. Any evidence?
I expect you to know and you didn't have to refer to James @ Jefferies.
It would sit on the balance sheet as a debt obligation, but it wouldn't be on the cashflow statement.
That is the purpose of a guarantor and what I implied by saying illiquid.
I did caveat that by saying until his other business are illiquid.
Not sure they do but Manghat has involvement through familial ties.
Shareholders
Name Equities %
Bavaguthu Raghuram Shetty 438,747,289 62.7%
Binay Raghuram Shetty 20,831,752 2.98%
BlackRock Investment Management (UK) Ltd. 12,073,488 1.72%
Fiera Capital (UK) Ltd. 9,056,719 1.29%
Promoth Manghat 7,103,250 1.01%
UX Investment Holdings Ltd. 6,713,838 0.96%
The Vanguard Group, Inc. 4,879,227 0.70%
Columbia Management Investment Advisers LLC 2,954,052 0.42%
Vanguard Global Advisers LLC 2,093,777 0.30%
BlackRock Fund Advisors 1,205,066 0.17%
If you've got mild symptoms you probably won't even know you have covid and so will not bother going. Out of the rest it will probably be a minority of NMC's clients that have money to burn like you suggest, but I can see your point.
NMC are a guarantor for the supply chain financing and not required to make payments. The payments are due from the other of Shetty's businesses, Finablr, Neopharma and they're not illiquid, yet! I would probably also treat the Bhuttis separately to Shetty. Aside from NMC I don't believe the Bhutti's have a vested interest in Shetty's other businesses....happy to be corrected on this.