Fortis wants Singhs to be public shareholders

Move seen as an attempt to dissociate from former promoters’ legal battle with Daiichi

Even as Fortis Healthcare promoters Malvinder and Shivinder Singh are locked in a legal battle with Daiichi Sankyo, the hospital major that recently secured Malaysia’s IHH Healthcare as a strategic investor, is seeking to reclassify the Singh brothers and related entities as public shareholders.

This is largely seen as an attempt by the debt-strapped health care major to distance itself from the ongoing legal tussle between the brothers and Daiichi.

The matter will come up for vote in the extraordinary general meeting (EGM) to be held on August 13. Fortis has already sent a notice to stock exchanges notifying about the EGM and the resolution to reclassify the promoters as public shareholders.

The EGM will be held to seek shareholder nod for the proposed issuance of 235.3 million equity shares to Northern TK Venture (NTKV), a wholly-owned subsidiary of IHH Healthcare, at an issue price of ~170 per equity share. Following the preferential issuance, IHH will hold 31.1 per cent of the company’s issued shares. IHH would also undertake a mandatory open offer for 26 per cent shares at ~170 per share.

The Fortis-IHH transaction would result in a change of control in the company. IHH, through its subsidiary, NTKV, would be classified as the promoter of the company, with power to nominate directors, representing two-third of the board.

Meanwhile, another resolution to be put to vote on August 13 is to reclassify the brothers and related entities from the category of promoters to public shareholding. Malvinder Singh, Shivinder Singh, Malav Holdings and RHC Holdings, among others, are now classified as promoter group. They collectively own 0.74 per cent of the company’s shares.

Malvinder and Shivinder Singh had resigned from the Fortis board in February and had noted in their letters of resignation that it would be in best interest of the company and good governance to free the company from any encumbrances that may be linked to the current promoters.

In its recent analysis, proxy advisory firm ISS noted that the proposal to reclassify the current promoters to public category would enable the company to separate itself from the issues surrounding its current promoters. “Meanwhile, the proposed classification of NTKV as promoter follows the change in control over the company,” it added.

However, the reclassification of the brothers may not be easy as Daiichi, which has a ~35-billion claim on the Singh brothers, is likely to oppose it as well as the IHH investment in the Delhi High Court on August 10, said legal experts. They said even if Fortis were to go for a change in promoter group, it may still be made liable for what erstwhile promoters owe Daichii. This is based on an undertaking in the court that the Singhs had given about valuation of assets under their control.

The Delhi High Court on Wednesday asked the brothers to personally appear before the court on August 10 to explain the reasons for discrepancies in their statements over holdings in Fortis. Daiichi had filed a plea in the court against Fortis-IHH deal, as they argued that the brothers, RHC Holding and Fortis are a single entity. Fortis counsel, on the other hand, argued that the Singhs were not in control of the company.

Japanese drugmaker Daiichi had won an arbitration award against the brothers and moved the court seeking an injunction on Fortis’ stake sale to IHH. Experts fear a prolonged legal case may delay the closing of the deal.