Fortis valuation may take hit, bidders revisit offers over law firm report

Fortis Healthcare had posted weak fourth-quarter numbers, two bidders said. The company will declare results on June 25

Fortis Healthcare Ltd (FHL) has extended the deadline for submitting binding offers till June 28. Prospective bidders, however, are now re-visiting their valuations of the hospital major in the light of recent revelations by law firm Luthra and Luthra. 

Two bidders said they could revise their offers downwards, since they were wary of the implications of the investigation, and according to their knowledge, Fortis had posted weak fourth-quarter numbers.

The company had postponed the announcement of the results to June 25, citing the need for additional time to consider certain aspects of the internal investigation report. The results were to be released on May 30.  

ALSO READ: Fortis stake sale bids postponed to June 28; Q4 result deferred to June 25

The Fortis board had appointed law firm Luthra and Luthra in March to investigate the allegations that the erstwhile promoters (Malvinder and Shivinder Singh) had siphoned off funds from the company. The investigation found that the promoters moved funds to three entities linked to them through inter-corporate deposits made by a subsidiary of Fortis Healthcare. 

“We had factored in a grey area of around Rs 4.73 billion in Fortis' accounts in the earlier valuation. However, the penalty on Fortis Escorts (a subsidiary of Fortis Healthcare) to the tune of Rs 5 billion will effect the valuation. Then there are undisclosed land-related issues as well,” one of the bidders said. The company was likely to post weak numbers in the fourth quarter of 2017-18, he added. 

“The financial performance of the ongoing quarter, too, is not good. These would affect valuation,” he said.  

ALSO READ: Fortis Healthcare seeks fresh bids for minimum Rs 15 billion investment

Another bidder, too, said they were re-looking at the valuation and would arrive at a conclusion after receiving the Luthra and Luthra report.

“We have sought the report from Fortis. While the Rs4.73 billion bit was accounted for, what is important now is the implication of the report," he added. 

Fortis has shared the report with the Serious Fraud Investigation Office (SFIO) and the Securities and Exchange Board of India (Sebi). 

“Earlier, people were not sure about the size of the 'hole'. But, now there was far greater clarity on that. One might revise the bid upwards or downwards, depending on the size of the burden they had factored in,” a senior executive of a proxy advisory firm said.  
ALSO READ: Fortis terminates Munjal-Burman offer, initiates fresh bidding process

Meanwhile, it is learnt that Deloitte, the statutory auditor for Fortis Healthcare, has refused to sign the fourth-quarter financial accounts of the company on grounds that it needed more information on the Luthra and Luthra report.

Deloitte, however, declined to comment on the matter, citing confidentiality. “We are bound by confidentiality obligations and are unable to comment on client-specific matters,” it said.