Despite desperate attempts to hold the business in place, there has been an evident erosion in trust, if the latest board meeting of Fortis Healthcare Ltd (FHL) and subsequent announcement of unaudited financial results are anything to go by. 

It has been revealed in the report that a subsidiary of FHL lent Rs 494 crore to borrowers overruling all objections by the management. These borrowers belong to three companies which are allegedly affiliated to Singh brothers. 

Repayment obligations

Fortis Healthcare had placed Rs 494.14 crore inter-corporate deposits with three companies on July 3, 2017 and had to be repaid in 90 days but they remained outstanding till March 31, 2018. An outstanding amount of Rs 445.03 crore has not yet been repaid and failure to meet repayment obligations has led to initiation of legal action. 

Violation of Treasury policy

The investigation report submitted by Luthra and Luthra law firm on the basis of documents, e-mails reviewed and interviews conducted, revealed that inter-corporate deposits were loans that were not given under the normal Treasury operations of the company and that the Treasury policy was allegedly violated. They were not specifically authorised by Fortis Healthcare board. The company has filed a legal action for recovery.

Quarterly results

Fortis Healthcare has reported a net loss of Rs 932 crore in the fourth quarter of financial year of 2017-18. 

A filing with the stock exchanges early morning stated that while the inter-corporate deposit borrowings were repaid by the borrowers from December 2011 until March 31, 2016, from the first quarter of the financial year 2016-17, a roll-over mechanism was devised whereby, they were repaid by a cheque by the borrower companies at the end of each quarter and fresh inter-corporate deposits were released at the start of succeeding quarter under separately executed inter-corporate deposit agreements. 

Systemic lapses, override of controls

Fortis Healthcare utilised the funds received from the company for the purpose of effecting roll-over. This essentially means that the inter-corporate deposits were never paid up.

“There were certain systemic lapses and override of controls, including shortcomings in executing documents and creating a security charge while the company/FHL was under financial stress,” a statement issued by the current set of three independently appointed board of directors to the NSE and BSE stated. 

“While the investigation report did not conclude on utilisation of funds by the borrower companies, there are findings in the report to suggest that inter-corporate deposits were utilised by the borrower companies for granting or repayment of loans to certain additional entities, including those whose current and, or past promoters, directors are known to, connected with the promoters of the company,” the statement said. 

“Given the substance, the investigation report has observed that the borrower companies could possibly qualify as related parties of the company and, or FHL.”

However, such allegedly known relationships were not disclosed. In this regard, a reference was made by the board of directors to Indian accounting standards dealing with related party disclosures, which stated that for considering each possible related party relationship, attention is to be directed to the substance of the relationship and not merely the legal form.

The investigation report has made observations where the promoters were evaluating certain transactions concerning certain assets owned by them for the settlement of inter-corporate deposits thereby indirectly implying some sort of affiliation with the borrower companies.

To make up for the losses, FHL sold off 18.2 million units of RHT health trust, an associate of the group for consideration of S$13.65 million, the statement said. 

The company had a net debt of Rs.1,404 crore as on March 31, 2018. This compared to a net debt of Rs 1,279 crore in the previous financial year, the results stated. 

Hospital biz hit

The hospital business, specifically in North India, was significantly impacted for a few months during the year as a result of several highly publicised patient related incidents in a few hospitals, the board admitted.

Over-charging case

The case of over-charging in Fortis surfaced after a bereaved father Jayant Singh of deceased baby Adya, who was charged up to Rs 16 lakh in 15 days, led to an investigation into the hospitals dealings by the National Pharmaceutical Pricing Authority (NPPA).

Impairments in Q4 FY2018 related to business related investments and goodwill were also substantial.

“For the year, the total impairment loss recorded was approx. Rs 327 crore. This includes the impairment of goodwill related to the company’s investments in Escorts Heart Institute and Research Centre Ltd of Rs 125 crore, RHT Trustee Manager Rs 37.6 crore, Birdie and Birdie Realtors (100% subsidiary of the company owning a land parcel in New Delhi) Rs 69.4 crore, impairment of investments in Lanka Hospitals Rs 49 crore. The company had also recorded a goodwill impairment of Rs 45 crore in the previous quarter due to the closure of Raipur unit,” a release from Fortis stated.

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