The crisis unfolding at NMC Health, the Middle East’s largest hospital operator, has reignited the debate about the governance of overseas companies listing in London.
The mystery of NMC’s ownership structure deepened on Monday after founder and co-chairman Bavaguthu Raghuram Shetty quit the board of the FTSE 100-listed company over concerns that he misreported his stake.
Since Friday, four board directors have resigned, including chief investment officer Hani Buttikhi and non-executive director Abdulrahman Basaddiq, who joined under a relationship agreement between the company and principal shareholders Shetty, Saeed Al Qebaisi and Khaleefa Al Muhairi. As a result, NMC NMC, +3.23% said it did not consider Basaddiq to be independent.
“The saga at NMC Health continues and so does the suffering of its shareholders. The whole affair is turning into one of the worst stock market disaster stories of recent times,” said Russ Mould, investment director at stockbroker AJ Bell.
“It will raise serious questions about how corporate governance issues and overseas listings are handled by the regulators. After all, the private healthcare operator is not some pie-in-the-sky small cap. It is, for now at least, a FTSE 100 company. Sadly it is not acting like one,” Mould added.
Shares in NMC were up 1.42% at 13:00 GMT.
As the U.K. vies for scarce new company listings, the London Stock Exchange and listings regulators must not sell out their governance standards in the name of competitive advantage.
There was justifiable disquiet when the listing authority proposed watering down its rules in an effort to woo Saudi Arabia’s national oil company, Aramco. But regulators and investors should remember the lessons learned from losses of the past, when rules were weakened.
NMC joined the London Stock Exchange in 2012 and was promoted to the prestigious blue-chip FTSE 100 index in 2017, giving it access to a deep pool of investors and the respectability needed with western investors.
To be included in the FTSE 100, companies have to have a “premium listing” and are subject to stringent corporate governance rules, including giving minority shareholders extra voting power on issues such as independent directors.
Premium listed companies must also maintain a free float – the number of shares in public hands – of at least 25%. The size of the free float matters as if the majority of shares are held by a close-knit group of founding shareholders, they can exercise undue influence over the board.
The current rules were tightened in 2013 after two high-profile boardroom disputes at Kazakh miner ENRC and Indonesian miner then known as Bumi left investors nursing heavy losses. At the time, the U.K. Listing Authority, which is part of the Financial Conduct Authority, had waived the usual governance requirements for these companies, allowing them to list less than 25% of their shares.
Companies in which one shareholder owns more than 30% are now required to have a “relationship agreement” in place to ensure they can operate independently from that shareholder.
The problems raised by a dominant shareholder’s influence surfaced again in 2017 when the FCA proposed creating a new “premium listing” category for sovereign-controlled companies. The category would have allowed Aramco, which had planned to list 5% or less of its equity, to skirt the full range of premium listing requirements designed to protect minority investors.
In the end, Aramco canceled the London leg of its IPO roadshow, raising just over $25 billion on the local Tadawul bourse in December.
But the fiasco at NMC shows that regulators need to do more to ensure high standards of regulation and corporate governance are being adhered to, and the City’s reputation is not at risk.