Decline and fall of the Singh brothers
On February 27 this year, spokespersons for Malvinder and Shivinder Singh told the Financial Times that the brothers wanted to be part of India’s “nation-building exercise”. Exactly a month later, the two brothers have a more pressing job: They are in danger of losing control of all their moveable properties. The Delhi High Court on Friday ordered the attachment of all moveable properties disclosed in an affidavit by the former promoters of Ranbaxy Laboratories. This is in relation to a ~35-billion arbitration case with Daiichi Sankyo of Japan.
The court order is certainly not the only problem the brothers have: They have also been sued by private equity firm Siguler Guff & Company for siphoning off funds from Religare Enterprises. Auditors Deloitte have red flagged over ~5 billion in unsecured advances fronted to vendors and an intercorporate group deposit provided to a promoter-related company.
Once considered poster boys of India’s booming pharmaceutical industry, the Singh brothers have lost control of their business empire after ceding most of their shares in a range of companies, including Fortis Healthcare and Religare Enterprises. They stepped down from both boards in February following a spate of allegations that originally surfaced just days after selling Ranbaxy to Daiichi. The latter received a rude shock when the US drug regulator imposed an import ban on Ranbaxy, citing poor quality of its drugs. That led to Daiichi suing the Singhs in 2013 and selling Ranbaxy to Sun Pharmaceutical a year later. By then, though, the Japanese company had lost an estimated ~60 billion.
The breadth of the allegations has surprised many. One former employee who interacted with both brothers said they were not spenders or party animals. “In fact, they had no vices, they did not smoke or drink,” he added. On the contrary, Malvinder Singh, a regular at the World Economic Forum in Davos, spoke about India’s pioneering role in health care and has partnered Bollywood actor Salman Khan’s Being Human Foundation to subsidise surgeries. Then in 2015, Fortis Healthcare’s cofounder Shivinder Singh said he would serve full-time at the spiritual retreat, Radha Soami Satsang Beas, to heed an inner calling. He was just 40 years old at the time.
It is not that the brothers did not try to make the new businesses work. After the 2008 sale, they set up a special purpose vehicle (SPV), RHC Financial Services, in Mauritius to buy overseas assets. Shortly thereafter, the SPV controlled Fortis International (separate from the Indian company Fortis Healthcare) snapped up six other companies, which included ready and under construction hospitals in Sri Lanka, Hong Kong, Australia, and Singapore. Meanwhile, Fortis’ India growth was substantial, going from one location in 2001 to 66 hospitals by 2011, which included 10 hospitals it bought from rival Wockhardt.
The Singh brothers have lost control of their business empire after ceding most of their shares in a range of companies
The company spent a sizeable chunk of change, $650 million, to buy a one-fourth stake in Parkway Hospitals of Singapore.
A management expert says international acquisitions hinge on two pivots: find a strategic fit to the core business; or if it is a diversification, buy and then rebuild the culture from the ground up or allow what remains to thrive. It is not clear if that was thought through when expanding and the business establishment was noticing. One executive search professional who declined to be named said, “It was difficult to get notable independent directors on board because they all saw was what was happening.” She goes on to add that in 2009, million-dollar salaries were being offered to chief executive officers. Another former financial executive at Fort is, who declined to be named, said, “Malvinder was the big-picture guy looking at deals and buyouts, while Sh iv in der was in charge of day-to-day operations .” When pressed for answers about what went wrong, the executive said it was Religare Enterprises, the financial services foray that undid them. They paid salaries of over ~10 milliona year to mid-level employees and the whole approach went overboard, he adds. In 2009, Religare even gave away 30 German luxury cars to top employees as retention bonuses, according to reports. All of that came at a cost. By 2011, debts of the publicly traded Fortis had crossed ~70 billion, and the debt-equity ratio, which a year ago was at 0.3, spiked 2.2 times. This was caused by the buying of promoter stakes in SRL Diagnostics for ~9.6 billion and the collective debt of Fortis International at ~32.7 billion.
Realising they had too much on their plate, the brothers aggressively started paring their holdings. First up was the profitable Australian subsidiary Dental Corporation, which was sold to Bupa Healthcare for ~15.5 billion. Then, the Singapore-listed Religare Health Trust was sold for ~22 billion. This was followed by the hiving off ~3.7 billion worth of equity in SRL Diagnostics. All these helped bring down debt to a reasonable ~23 billion and the debt-equity ratio to about 0.6. Banks have revoked most of the pledged shares in Fortis, which amounted to 98 per cent of the promoter holdings, and a new owner is likely to emerge soon. The family’s stake in Religare Enterprises was down from 64 per cent in March 2015 to 13 per cent in December 2017, with 84 per cent being pledged. By mid-February, the brothers relinquished their directorships and official involvement in both Fortis and Religare, thereby ending the family's business legacy that is as old as independent India.