Endgame For Singh Bros As India’s Top Court Upholds $550m Daiichi Arbitration Panel Award

Tycoons Malvinder and Shivinder Singh have exhausted Indian legal avenues in their fight against enforcement of a Singapore arbitration panel order to pay $550m to Japanese firm Daiichi Sankyo and now must decide whether to take their battle to a Singapore court.

It’s gone from bad to worse for billionaire brothers Malvinder Singh and Shivinder Singh, who were once the poster boys of the Indian pharmaceutical industry. First, India’s Supreme Court rejected the brothers' appeal against paying a INR35bn ($550m) arbitration award to Daiichi Sankyo Co. Ltd. for allegedly hiding vital information when they sold generic giant Ranbaxy Laboratories to the Japanese company in 2008.

 

Now it has also emerged that India’s Serious Fraud Office is investigating allegations that the siblings illegally siphoned off hundreds of millions of dollars from group companies.

 

The Singh brothers lost on Feb. 16 their Supreme Court appeal against Daiichi's bid to enforce payment of a $550m Singapore arbitration tribunal award in 2016 over alleged concealment of Ranbaxy's problems with US regulators. The brothers, whose finances were already under severe strain from a heavy debt load, had denied any wrongdoing and argued the penalty was unenforceable under Indian law.

 

 

But the Indian Supreme Court upheld a lower court ruling that the Singhs fraudulently concealed the "genesis, nature and severity of the US regulatory investigations" of Ranbaxy in selling their stake in the company to the Japanese pharma company for $2.4bn.  (Also see "Singh Brothers Asked To Pay Up $550m Arbitral Award To Daiichi" - Scrip, 1 Feb, 2018.)

 

The brothers, known for their matching turbans and stylish suits, declared in a statement after the Supreme Court decision that they are determined to clear their names. "We would now like to fight for our justice and pride at this point and not for economics only," the Singhs said in a joint statement. "There was no misrepresentation in the Ranbaxy deal to Daiichi Sankyo and these are false accusations," they added. The brothers said they were "evaluating the option to challenge" the arbitration award in the Singapore courts.

 

After Daiichi bought Ranbaxy, the Indian company was forced to pay a $500m penalty in the US for selling adulterated medicines and the Japanese firm ended up taking a $3.7bn write down on its purchase. The brothers maintained Daiichi knew about Ranbaxy's regulatory problems and bought Ranbaxy at a hefty premium to the then-market price to get into the fast-growing global generics market. At the time, as the extent of Ranbaxy’s problems became known, the brothers were praised for their ability to exit businesses at the right time.

 

Daiichi ultimately unloaded Ranbaxy in 2015 for $4.1bn to India’s Sun Pharmaceutical Industries Ltd..  The purchase made Sun the country’s biggest drug maker but the company is still struggling to resolve its erstwhile rival’s US regulatory problems.

 

After the Ranbaxy sale, the Singh brothers were riding high at No. 13 on Forbes magazine’s list of the 40 richest Indians, but as their legal and financial troubles mounted they fell out of the wealth rankings and Forbes now estimates their real-time net worth at $1.15bn.

 

Brothers Quit Fortis Board, Face New Allegations

Following the Supreme Court decision, the brothers quit the board of one of their main companies, Fortis Healthcare Ltd, owner of India’s second-largest hospital chain Fortis Hospitals. The brothers said they were resigning in the interests of "propriety and good governance" and "to free the organization from any encumbrances" possibly linked to them. Indian media had reported banks were reluctant to lend money to Fortis while the brothers were on the board.

 

The brothers also have been slapped with a lawsuit in the Delhi High Court filed by a New York-based investment fund that alleges they were "systematically plundering" Religare Finvest Ltd, the lending arm of their flagship financial services company Religare Enterprises. The fund, managed by private-equity firm Siguler Guff & Co., accuses the brothers of  siphoning $300m to their privately held firms through loans extended by Finvest, and of funneling at least INR5bn ($78m) from Fortis to meet personal liabilities of $1.6bn, according to Bloomberg News.

 

The brothers have rejected the allegations in the suit to be heard next month as "baseless". Responding to the news report, Fortis meanwhile said in a statement its wholly owned arm Fortis Hospitals had put in INR4.73bn as loans in the Singh brothers' group companies and that they had been secured and repayment had begun on time. But that explanation has raised eyebrows with analysts questioning Fortis for bypassing shareholders.

 

Up to a few years ago, the Singhs were known as consummate deal makers. After selling Ranbaxy, the brothers went on an expansion spree to build their own healthcare and financial services empire with the proceeds from the divestment of their controlling stake which they inherited in 1999 from their father Parvinder Singh. Parvinder had built Ranbaxy into a powerhouse but died of cancer at aged 56 when his sons were just in their 20s. Malvinder now 45 and Shivinder 43 have always displayed a unified corporate front.

 

They built up Fortis Healthcare in India, establishing hospitals across the country, then grew their holdings across Asia as some newspaper headlines proclaimed "Singh is king". But the brothers also accumulated a hefty debt load and by 2015 they had been forced to abandon their international ambitions and offload most of their foreign assets to focus on India. Questions also started being aired in the Indian media about heavy volumes of inter-group transactions and about the speed and secrecy accompanying some of their acquisitions.

 

Shrinking Market Cap, Multiple Probes

As the brothers' financial problems have deepened and corporate profitability has weakened, the combined market capitalization of their group companies has shrunk to INR83bn from nearly INR206bn at the time of the Ranbaxy sale a decade ago. Total net profits of group companies stood at INR1.7bn in fiscal year 2017, down from INR7.7bn in 2008.

 

Compounding their problems, the Indian government’s Serious Fraud Investigation Office, which looks into mainly white-collar crime, has been given three months to investigate the brothers' financial affairs and specifically the  allegations of the diversion of funds from group companies, The Press Trust of India reported.

 

Separately, the Securities and Exchange Board of India, the country's securities watchdog, has ordered an inquiry into Fortis, the hospital chain said in a statement. The company has yet to report either its second or third quarter results, and has denied media reports that the postponement is because auditors refused to sign off on the accounts.

 

On another front.  the brothers have been seeking to sell some of their holdings, including Fortis, to pare group debt. There are reported to be various suitors for Fortis with India's Manipal Health Enterprises Private Ltd - which operates a network of hospitals in India - mentioned as a front-runner, backed by US private equity investor TPG Capital.

 

But the Singhs were forced to put efforts to sell Fortis on hold after Daiichi's lawyers asked the courts to restrain the brothers from selling any of their holdings. The lawyers told the court the Japanese company feared that most of the Singhs' assets were so debt-laden the compensation award would be "unrealizable."  (Also see "Ranbaxy Case Churns As Singhs Face Fortis Sale Issues" - Scrip, 26 Jun, 2017.)