Board members, Execs questioned as IHH-Fortis deal comes under SFIO scanner

NEW DELHI: The $1.3 billion takeover offer for Fortis Hospitals by Malaysia’s IHH Healthcare has now come under the scanner of the Serious Fraud Investigation Office (SFIO).

The central agency has widened its ongoing probe into alleged financial irregularities at Fortis to also cover the July 2018 deal, which was the biggest foreign direct investment offer in the hospitals space, people in the know said. This development comes after a Supreme Court order in November 2019.

In the past one month, senior members of the Fortis board and its top management have been questioned multiple times by the agency, whose mandate is to probe alleged corporate frauds. This new line of probe veers from the earlier efforts that focussed more on Singapore-listed REIT Religare Health Trust (RHT), which was floated by Fortis founder-promoters Malvinder and Shivinder Singh to house part of their hospital assets.

Fortis declined to comment. Attempts to reach SFIO for a comment were not successful till press time Monday.

The takeover drama has been caught in a logjam for over 16 months now.

The Supreme Court had put the Fortis sale on hold in December 2018. When it heard the case again in last November, it refused to lift the stay and questioned the infusion of Rs 4,600 crore by IHH into Fortis to buy back its hospital assets from RHT. The court said this transfer was done in a very “hurried and clandestine manner” and in violation of its 2018 order. It then ordered that the sale details of the hospital chain be probed into and sought details of Fortis’ board and management. It also initiated a contempt-of-court case against Fortis.

Interestingly, stock market regulator Securities and Exchange Board of India is now a party to the case — it has requested the apex court to clear the open offer.

The SFIO has also questioned former executives including past CEOs and chief financial officers of the chain, going all the way back to 2012.

“Earlier, the focus was more on the evolution of RHT and its relationship with Fortis. Now the IHH transaction is under scrutiny. In that process, some of the current independent directors have also been called for questioning,” said an official in the know, speaking on the condition of anonymity. “The biggest FDI involving a marque company that does business in Singapore, China, Turkey and Malaysia is stuck.”

The SFIO has asked the board members of Fortis to prove that they had not entered into any pre-agreed deal with IHH. They have also enquired about why competing bids were not considered by the board and their rationale for shortlisting IHH.

In June 2018, JM Financial Services Singapore chairman Ravi Rajagopal has been appointed as the chairman of the Fortis board. Rajagopal, also the chairman of the audit committee for Vedanta Resources, was one of the people nominated to the Fortis board by a group of shareholders seeking the removal of four of its earlier directors. Having worked also with MNCs like Diageo, Rajagopal was the head of finance and commercial at Ranbaxy Laboratories, which was once held by the Singh brothers, between 1995 and 1996.

Rajagopal, along with Espandere Advisors cofounder Suvalaxmi Chakraborty, independent management consultant Indrajit Banerjee and former PwC deals practice senior partner Rohit Bhasin were brought on board to evaluate offers for Fortis and steer the company.

Rajagopal is currently the chairman of the company, while Banerjee and Chakraborty are independent directors. There are nine directors in total, including representatives of IHH.

In 2012, Fortis had raised around $511 million by transferring 14 key healthcare properties and four underdeveloped sites for 15 years to a business trust under RHT. All infrastructure belonged to RHT and, according to the agreement, Fortis had to pay rent to RHT. The SFIO is also suspicious of the relationship between Fortis and the trust, as data on RHT’s unit holding as of June 2017 showed that the Singh brothers and their family members virtually owned it.

Fortis healthcare has been under scrutiny for alleged financial irregularities for long now. In 2018, Fortis had received a notice from the SFIO following reports that the Singh brothers had allegedly siphoned off at least $78 million out of the company without board approval.

Fortis had also come under the lens of Sebi, which launched an investigation into alleged regulatory lapses.