Mr BR Shetty or Bevaguthu Raghuram (B R) Shetty, the Abu-Dhabi based billionaire, who is under the scanner of various investigating agencies for indulging in commercial fraud and skullduggery once happened to be the most respectable name in the pantheon of Indian expatriates of the gulf region. He embodied the ultimate immigrant dream in the Persian Gulf — a man from coastal Karnataka who arrived in the oil-rich West Asian deserts in the early 1970s with $8(Rs 56 then) in his pocket and went on to create a personal fortune estimated by Forbes to be $4.2 billion in 2018. Let’s dive into exactly what happened in the BR Shetty fraud
In mid-2018, during a media interaction, Bavaguthu Raghuram Shetty remarked: “If I don’t have one problem a day, that’s not a good day for me. I should have a problem, solve it and then feel satisfied.”
It seems that his wish has come true because he has a colossal problem standing in front of him today whose severity threatens to obliterate everything he built from scratch over four decades, and irreparably besmirch his legacy. And all this happened because someone handling the Twitter handle of a boutique research firm in California decided to be a tease.
This research firm called Muddy Waters is run by a short-seller named Carson Block, who has made a name exposing accounting frauds in Chinese public companies. He shot to fame in 2011 when he issued a report accusing Canada-listed Chinese plantation operator Sino Forest of overstating its timber holdings. The stock tanked 78% in days. That’s when Wall Street first took note of the new kid on the block. Short-sellers like him bet on the price of a stock going down. Block typically takes a short position on a stock before releasing a report and makes money when a stock gets hammered. The conflict of interest is clearly declared on its website. His line of work generates such heat that he doesn’t disclose his location and has spoken about receiving death threats.
A report by Muddy Waters cited concerns about NMC Health’s financial statements and is also suspicious of undisclosed debts at the company. It is estimated that the company has understated its debt by $4.5 billion in 2019. The findings have revealed a total debt of $6.6 billion against the disclosed amount of $2.1 billion.
The under-reported debt accusation is based on lease reporting after the purchase of a company called Aspen Healthcare, where it says NMC did not report capital lease obligations Aspen’s former owner had previously.
The report claims that there has been misstatement of holdings because either NMC has undisclosed debt secured by share pledges or the pledges were “collateral for loans to related parties that transacted with NMC on non-economic terms, thereby subsidizing NMC’s margins.”
This circular symbiosis is reminiscent of Enron scandal in 2001 in which Enron issued shares to ‘special purpose entities’, which borrowed money using the stock as collateral, and then bought (poor) assets from Enron. As with Enron, this circular arrangement would work until the stock value falls, which is what ultimately triggered Enron’s collapse.
There have also been purchasing of assets from related parties at inflated prices including $107m (£81m) for the NMC Royal Women’s Hospital in Abu Dhabi. The price paid was around $7,700 per square metre, against Muddy Waters’ expectation of $3,500-4,000 per square metre cost.
Massive undisclosed share movements among B R Shetty, the Buttis, and various banks have been found. Filings show that Shetty pledged a quarter of his NMC stake against loans with First Abu Dhabi Bank and Zurich-based Falcon Private Bank. Two other shareholders may own half of his reported stake. Another lender — Al Salam Bank Bahrain — has already sold some of those shares to enforce security over a loan for Shetty, and NMC said Tuesday that First Abu Dhabi Bank sold another chunk earlier this month.
UPRISING OF B R SHETTY
Belonging to the Tulu-speaking Bunt community of coastal Karnataka, Shetty grew up in a modest but well-respected farming family in Kapu in Udupi district, alongside three brothers and three sisters.
Shetty contested on a ticket from the Jan Sangh, the predecessor of the Bharatiya Janata Party. Among those who campaigned for the 26-year-old candidate was former prime minister Atal Bihari Vajpayee.
He came to Abu Dhabi at the age of 32 to pay off his family’s loan. As he lived in dirty and miserable conditions in a small room with 4 people and no proper toilet facilities.
He struggled to get a job despite attending interviews daily. This went on for months. Living in the heat of Abu Dhabi with no proper home and food was a real challenge, but he persevered.
When he finally got a job in a pharmacy company, he saw medicine that was not being sold, just stocked and wasted. He hit upon a bright idea and decided to deliver medicine door to door. Thus he became the country’s first outdoor salesman in the 1970s! People came with other commodities to him for selling. He started his earning and networking, building strong connections with people.
His first big gamble came in 1975, when he decided to open a private clinic, though the government was offering free healthcare. But Shetty smelt an opportunity and opened a clinic and a pharmacy in a two-room apartment, calling it New Medical Centre (NMC). The first doctor was his wife, Chandrakumari Shetty.
His next big opportunity came five years later, inspired by the long queues of migrant workers lining up to send money back home. In 1980, he launched money remittance firm UAE Exchange, which charged less than banks at that time and grew to become a market leader, eventually expanding to 850 direct branches in 31 countries. Subsidiaries such as Xpress Money have larger footprints.
His hard work made him one of the most respectable persons in UAE. He owns a fleet of cars and two entire floors of the Burj Khalifa, the world’s tallest skyscraper. His website shows him hobnobbing with politicians, Bill Gates and Bollywood royalty.
He was awarded the Order of Abu Dhabi by the government there in 2005, which he is always seen wearing, pinned to his lapel (as shown in the picture above). A Padma Shri in India followed in 2009.
What lies ahead?
In a nutshell, Mr shetty has been accused of having undisclosed debt burdens, buying of assets from related parties at inflated prices and engaging in massive undisclosed share movements. He flew to India in February as his elder brother was severely ill and has now been stuck here due to lockdown. Shetty said in a statement previously that he would return to Abu Dhabi once flight restrictions were lifted and this time the emirate’s law enforcement might be watching closely.