Raghuram Shetty remarked: “If I don’t have one problem a day, that’s not a good day for me. I should have a problem, solve it and then feel satisfied.”
One must, as the adage goes, be careful about what one wishes for. At the time of the interview, there was not a cloud on the horizon for the Abu Dhabi-based billionaire-founder of NMC Health, then the biggest private healthcare company in the United Arab Emirates (UAE). Its 2012 IPO in the London Stock Exchange — the first for an Abu Dhabi-based company — was a blockbuster, raising £117 million. In 2014, he acquired UK-based forex major Travelex, paying £1 billion. A sprawl of smaller businesses that he owns across hospitality, education and pharma were all doing well. In 2017, he said he would produce the most expensive movie ever made in India — a feature based on the epic Mahabharata. Budget: Rs 1,000 crore.
Shetty embodied the ultimate immigrant dream in the Persian Gulf — a man from coastal Karnataka who arrived in the oil-rich West Asian deserts in the early 1970s with $8 in his pocket and went on to create a personal fortune estimated by Forbes to be $4.2 billion in 2018.
Sheikh Mansour bin Zayed al Nahyan, UAE deputy prime minister and owner of the Manchester City football club, is the patron of Centurion Investments, once NMC’s top shareholder. Not only had Shetty achieved fabulous success, he was also paying it forward. He had signed up to be part of the Giving Pledge — a campaign by Bill Gates and Warren Buffett — committing to donate to charity at least half of his personal fortune.
And therefore, when he gave that interview, there was no reason for anyone to suspect that his empire could come crashing down. Least of all, because someone handling the Twitter handle of a boutique research firm in California decided to be a tease.
Chinese Proverb On August 6, 2019, Muddy Waters teased on Twitter a report on a UK-based investment firm it was going to release the following day: “Muddy Waters is now in a blackout period until tomorrow 8 am London time when we will announce a new short position on an accounting fiasco that’s potentially insolvent and possibly facing a liquidity crunch. Investors are bulled up about this company, we are not.”
Muddy Waters (named after the Chinese proverb, “Muddy waters make it easy to catch fish”, not the blues singer) is a controversial research firm run by short-seller Carson Block, who has made a name exposing accounting frauds in Chinese public companies. He shot to fame in 2011 when he issued a report accusing Canada-listed Chinese plantation operator Sino Forest of overstating its timber holdings. The stock tanked 78% in days, and billionaire hedge fund manager John Paulson lost $110 million. That’s when Wall Street first took note of the new kid on the block. Short-sellers like him bet on the price of a stock going down. Block typically takes a short position on a stock before releasing a report and makes money when a stock gets hammered. The conflict of interest is clearly declared on its website. His line of work generates such heat that he doesn’t disclose his location and has spoken about receiving death threats.
But on that day in August, when Muddy Waters tweeted that it would release a report about an accounting fiasco at a London-listed firm, Block noticed an interesting development: the stock of NMC Health dropped. “We had tweeted in advance an innocuous comment about our intention to initiate a campaign the next day on an unnamed London listed firm. NMC happened to drop significantly on the tweet. That’s a pretty strong indication that the market knows something isn’t right at the company, so we took a look….” Block told ET Magazine in an emailed response.
What they found was not pretty.
House of Cards
When Muddy Waters released a damning report four months later, on December 17, it set off a chain of events that has stunned UAE.
NMC Health, the first company Shetty started, stands accused of falsifying accounts and faces charges of fraud. A private investigation revealed it might have understated its debt by $4.5 billion in 2019. Shetty’s financial services firm Finablr, an LSE-listed enterprise that owns the remittance firm UAE Exchange, has discovered that $100 million worth of cheques were issued from the company without the board’s knowledge. Top executives at both firms have either resigned or been sacked. LSE has suspended trading in the stock of both the companies. NMC Health has been placed in administration. Shetty himself stepped down as director and joint non-executive chairman of NMC Health in February and is now facing criminal charges in Abu Dhabi allegedly for fraud and forgery.
Trading in the NMC stock was suspended in London in February. It had fallen by more than 60% from the levels that prevailed just ahead of the report (November 26). The American Depositary Receipt — a stock-equivalent instrument traded on Nasdaq — of the stock has lost 98.99% of its value from November 26.
NMC reportedly owes money to over 80 financial institutions. On March 24, NMC Health informed the LSE that the group’s debt was estimated to be $6.6 billion, comprising “over 75 debt facilities from over 80 financial institutions”. According to court filings reported by Bloomberg in April, NMC owes Abu Dhabi Commercial Bank (ADCB) $963 million, Dubai Islamic Bank $541 million, Abu Dhabi Islamic Bank $325 million, Standard Chartered $250 million and Barclays $146 million.
At the age of 77, Shetty finds himself grappling with problems so severe they threaten to obliterate everything he built from scratch over four decades, and irreparably besmirch his legacy.
Shetty flew to India in February, a journey he says he undertook to care for his ailing elder brother, who has since passed away. He told ET Magazine that he will share “very good news” soon, though not at the moment, and declined to comment further. (He did not respond to a detailed questionnaire sent by ET Magazine over email and WhatsApp.) Previously, he said in a statement that he had launched his own legal and forensic investigations and would share the results with appropriate authorities. “I am absolutely determined to bring to light the full facts, and the whole truth around what has transpired as soon as possible,” he had said.
The developments have left many aghast. After all, in the pantheon of Indian expatriate gods in the Gulf region, Shetty was high up there. Perhaps nowhere is this consternation felt more keenly than in coastal Karnataka, where he hails from, and for whom he had become a symbol of pride and possibility.
The Boy From Kapu
“I’m very surprised and very sorry. He is a very simple man. I’m sure he hasn’t done any golmaal,” says M Mohan Alva, chairman of Alva’s Education Foundation in Dakshina Kannada district, who has known Shetty since the 1970s. Belonging to the Tulu-speaking Bunt community of coastal Karnataka, Shetty grew up in a modest but well-respected farming family in Kapu in Udupi district, alongside three brothers and three sisters.
Like his father before him, Shetty, too, successfully contested elections to the Udupi Municipal Council in his 20s. While his father was a Congressman and freedom fighter, Shetty contested on a ticket from the Jan Sangh, the predecessor of the Bharatiya Janata Party. Among those who campaigned for the 26-year-old candidate was former prime minister Atal Bihari Vajpayee, while the Congress was led by Indira Gandhi. “I was a very dynamic boy during those days and… Vajpayee, who was a gifted orator, was moving through our area and I used to drive him in my car,” Shetty told The Organiser, the RSS mouthpiece, in a 2018 interview. The Jan Sangh trounced the Congress in the election of 1968, winning 12 of 15 seats. When his term ended, Shetty was elected a second time, and became vice-president of the council. The ties with the Jan Sangh and then the BJP have endured — Shetty was one of the main organisers of Prime Minister Narendra Modi’s visit to Abu Dhabi and his display picture on WhatsApp is a photo of himself with the PM.
Back in the 1970s, Shetty, who had qualified as a pharmacist, had become a distributor for a Pune-based pharmaceutical company in Udupi. But because he spent most of his time in politics, his business suffered. So much so that he had to take a personal loan to fund his sister’s wedding. That loan, sanctioned by Syndicate Bank’s then managing director KK Pai, as Shetty has mentioned many times, played a crucial role in his fortunes. With little money and a debt to repay, Shetty decided that he had no choice but to look for greener pastures elsewhere. Like many young men those days, he decided to seek his fortune in the newly formed United Arab Emirates.
Though he left years ago, Alva says the region is still very close to his heart, and Shetty and his family make multiple visits a year. “He is a very simple man. If you call him for a family function here, he will come,” says Alva. Shetty, he says, continues to drop in at old haunts like Diana Hotel in Udupi, where he likes to dig into gadbad, a many-layered icecream the city and neighbouring regions are famous for. When he was looking for a suitable alliance for his son, Binay, CEO of the holding company BRS Ventures Investment, he turned to Alva to help find a “simple, homely girl” from the region, says Alva. (He obliged, and the wedding took place in Mangaluru in 2017, attended by the then CM Siddaramaiah and a galaxy of leaders.)
Shetty has earned much goodwill in the area by recruiting many of its youngsters to his various companies. An employee with Shetty’s money remittance firm UAE Exchange in Abu Dhabi, who requested not to be named, told ET Magazine on the phone that for anyone from Mangaluru and Udupi who dreamt of finding a job in West Asia, Shetty would be the first port of call.
Opportunities of a Lifetime
While Shetty embraced the trappings of wealth — he owns a fleet of Rolls-Royces, a private jet and two whole floors in the Burj Khalifa — he never tried to hide his humble origins. The arc of how a struggling Shetty made it big is a familiar one of hard work, the right connections and the knack to spot an opportunity. “He would talk freely about his humble origins,” says TP Sreenivasan, India’s ambassador to the UAE between 2013 and 2016, who has met him on several occasions. “He used to enjoy talking about how he achieved his success, and encourage others.”
In his telling, Shetty landed in Abu Dhabi in 1973, with $8 (Rs 56 then) and a bag, which got stolen. Unable to find a government job since he did not speak Arabic, he hustled his way into a job selling medicines, becoming what he calls the country’s first outdoor medical representative. Returning from a hot, hard day’s work, Shetty would wash the shirt he was wearing, dry it overnight and then wear it again the next day, when he set out with a Samsonite bag full of medicines, which he still keeps as a reminder of difficult times. Ever the consummate salesman, he also began selling FMCG for a commission.
His first big gamble came in 1975, when he decided to open a private clinic, though the government was offering free healthcare. But Shetty smelt an opportunity and opened a clinic and a pharmacy in a two-room apartment, calling it New Medical Centre (NMC). The first doctor was his wife, Chandrakumari Shetty. Alva says Shetty never shied away from hard work, even driving the ambulance on occasion. NMC Health has gone on to become a healthcare giant, employing over 2,000 doctors across 45 hospitals.
His next big opportunity came five years later, inspired by the long queues of migrant workers lining up to send money back home. In 1980, he launched money remittance firm UAE Exchange, which charged less than banks at that time and grew to become a market leader, eventually expanding to 850 direct branches in 31 countries. Subsidiaries such as Xpress Money have larger footprints. Shetty has said that what set his firm apart was personalised service. It also kept up with technological advancements, becoming one of the first to offer SWIFT transactions, enabling the speedy transfer of money across borders. The various finance companies were later brought under the umbrella of Finablr.
Then, in 2003, Shetty set up Neopharma, a pioneering pharmaceutical manufacturing venture with a state-of-the-art plant in Abu Dhabi. One of the company’s first joint ventures was with Bengaluru-headquartered Biocon, struck in 2007. “When we met, Shetty said why don’t we set up a joint venture in Abu Dhabi, which I thought was a very good idea. So we formed Neobiocon, which has done very well as a joint venture,” says Biocon chairperson Kiran Mazumdar-Shaw. The latest developments and the allegations of fraud, she says, came as a shock, adding that there was no concern about her joint venture, in which Shetty has the majority stake. “The financial dealings of our joint venture are very transparent.”
As Shetty’s businesses expanded along with the oil boom in the Gulf, his stock rose considerably in the Indian community and among the Emirati rulers. He was awarded the Order of Abu Dhabi by the government there in 2005, which he is always seen wearing, pinned to his lapel. A Padma Shri in India followed in 2009. Over the years, Shetty has been increasing his business interests in India — acquisitions include the 180-year-old Assam Company, Mumbai’s Seven Hills Hospital, which was facing insolvency proceedings, and hospitals in Kerala and Odisha.
Former ambassador Sreenivasan says Shetty was one of the people Indian expatriates turned to for help. “And he invariably helped. One has known him as a person generous in supporting community causes and many organisations benefited from his largesse.” Shetty, he says, did not hesitate to accept invitations to events though he knew many of these would translate into requests for help.
Soorya Krishnamoorthy, founder of the long-running Soorya Festival of arts and culture, has similar anecdotes about Shetty’s generosity. “He has been a patron for the last 30 years. It was his way of supporting the arts,” says Krishnamoorthy, based in Thiruvananthapuram. “While I was heading the Kerala Sangeetha Nataka Akademi, I had launched a Rs 1 lakh insurance plan for artistes in Kerala. What many do not know is that Shetty paid the premium for all the artistes, about 6,000 of them, for the six years that I held the post,” says Krishnamoorthy who, like others who have known Shetty well, expresses disbelief at the recent turn of events.
While this gesture might have slipped under the radar, other flamboyant ones have made headlines. Like the time he jumped on stage after a concert by singer KJ Yesudas and offered him the keys to his Rolls-Royce, because he was so moved by the performance. A few other grandiose announcements have come to naught, like his intent to launch a Rs 450 crore tourism project around the Jog falls in his home state. The biggest of them was perhaps his announcement that he would spend Rs 1,000 crore on a film based on an interpretation of the Mahabharata by writer MT Vasudevan Nair. It never took off.
The Brothers from Kerala
Shetty was first noted internationally with the 2012 IPO of NMC Health. The company reported revenues of over $2 billion in 2018. Finablr, the umbrella company for various finance companies including UAE Exchange, also listed on the LSE in May 2019, although its success was more muted. Behind both the IPOs were two brothers from Palakkad, Kerala, who had risen through the ranks to become part of Shetty’s inner circle.
At the time of the listings, Prasanth Manghat was CFO of NMC Health while younger brother Promoth Manghat was CEO of UAE Exchange and executive director of Finablr. The Manghats joined Shetty’s empire in 2003 and rose to be counted among Shetty’s most trusted lieutenants. In 2017, when Shetty stepped down as CEO of NMC Health, Prasanth, then the deputy CEO, was elevated to the role. The businessman had for long employed many people from Kerala — over 70% of his employees, he had said, laughing, in an interview, were Malayalis. The bond goes back to his early days when the community of Malayalis had supported him, including people like MK Abdullah, uncle of LuLu Group founder MA Yusuff Ali.
What Lies Ahead
Events have unfolded rapidly at Shetty’s companies following the 2019 Muddy Waters report. While its report focussed on accounting issues at NMC without quantifying them, what has subsequently been revealed might have come as a surprise even to Block, who is accused of suspecting the worst about his target companies.
As the stock continued to tank in January 2020 despite vehement denials, the company appointed Freeh Group, headed by a former FBI (Federal Bureau of Investigation) director, to investigate the charges. The probe found that unknown to the board and the stock market, the company had entered into a $335 million financing arrangement with entities controlled by Shetty and another main shareholder, Khaleefa Bin Butti. There was also confusion about how much stake each shareholder owned, with the company revealing that a few principal shareholders had “misstated” their stake. CEO Manghat was fired after the discovery of the secret loan, and Shetty stepped down in February.
At the same time, Finablr, which had initially hoped it would be ring-fenced from the goings-on at NMC, found it had troubles of its own after discovering that undisclosed cheques worth $100 million had been issued to fund third-party borrowing. It was also revealed that Shetty had pledged stake in both NMC Health and Finablr as collateral for loans. Perhaps the most damaging of all was the revelation in March that NMC Health’s actual debt was $6.6 billion, far higher than the $2.1 billion it had initially revealed. Creditors have now moved against the top management, with ADCB filing a criminal case reportedly against Shetty and Prasanth Manghat, among others. “It’s not surprising that NMC is in administration given that the real debt is approximately 3.5x the reported amount… We hope that the administrator can save the sound operational elements of the business. It is important that those who are responsible for this massive fraud are held to account,” says Block.
The Manghat brothers are reportedly in India but this could not be verified. They have not made any public statements.
Efforts are underway in the emirate to salvage NMC, even as the region battles a growing coronavirus challenge. Abu Dhabi wealth fund Mubadala Investment Company was weighing an investment in NMC, Bloomberg reported last month. Shetty said in a statement previously that he would return to Abu Dhabi once flight restrictions were lifted. If he once left Kapu to repay a loan, he now has to make that journey again, to fulfil massive obligations across the Arabian Sea. This time, the emirate’s law enforcement might be watching closely.