PAP candidate Tan See Leng leaves IHH at a time when KPMG issues “qualified opinion” on its financial statement

The People’s Action Party (PAP) formally introduced four new candidates for the upcoming GE last Thursday (25 Jun).

One of the 4 introduced was Dr Tan See Leng, 55, who was the managing director and chief executive officer of IHH Healthcare from Jan 2014 to Dec 2019. Tan left IHH at the end of last year after his contract ended as he “has elected to retire upon the completion of his contract period”.

IHH Healthcare operates in Malaysia, Singapore, China, Turkey and India. It is listed on exchanges of Malaysia and Singapore. Its subsidiary, Parkway Pantai, is the crown jewel of the group, with a network of hospitals in Asia, including Mount Elizabeth Hospital, Mount Elizabeth Novena Hospital, Gleneagles Hospital and Parkway East Hospital in Singapore.

Tan was assigned by PAP to contest in Marine Parade GRC, where PAP is facing off WP.

IHH’s trouble in India

Under Tan, IHH made multiple acquisitions which propelled it to become Asia’s biggest healthcare group over the last decade.

However, it hit a road bump over the last 2 years when it tried to acquire Fortis Healthcare, a healthcare provider in India and Sri Lanka. According to its Annual Report 2019, IHH went ahead to acquire 31.17% in Fortis through a INR40 billion (US$584 million) share subscription two years ago (Jul 2018). By Nov 2018, IHH succeeded in acquiring the 31.17% stake with board control in Fortis, thereby triggering a mandatory takeover offer for a further 26% stake in the company.

This would make IHH the majority shareholder of Fortis. The mandatory takeover offer would also trigger another open offer in Fortis’ listed subsidiary, Fortis Malar Hospitals Ltd. In all, IHH could own up to 57% stake in Fortis if the open offers were executed.

However, the mandatory takeover offer to acquire a majority stake in Fortis by IHH was put on hold in Dec 2018, when India’s Supreme Court ordered a halt to the acquisition following a petition filed by Japanese drugmaker Daiichi Sankyo. Daiichi sought a stay on the Fortis sale as the former Fortis owners had not fulfilled their commitment to pay the drugmaker as per previous Delhi High Court order. The former owners were said to have created encumbrances on their shares even after the court order. They themselves are also under investigation by the Indian authorities for fraud.

In Nov last year, the Indian court further found Fortis’ former owners guilty of contempt of court and said similar proceedings would also commence against Fortis, which IHH has board control in. This is because certain transactions between IHH and Fortis were deemed to have violated the December 2018 court’s directions. Also, the court ordered that the transactions be probed into and sought details of Fortis’ board and management. The court said the transactions were done in a very “hurried and clandestine manner” and in violation of its 2018 status quo order.

Indian authorities probe IHH’s acquisition of Fortis

And in Feb this year, Indian authorities, the Serious Fraud Investigation Office (SFIO), has widened its ongoing probe into alleged financial irregularities at Fortis, to also cover the Jul 2018 deal of IHH’s acquisition of Fortis. According to Indian media, senior board members of Fortis and its top management have been questioned multiple times by SFIO.

“The IHH transaction is under scrutiny. In that process, some of the current independent directors have also been called for questioning,” said an SFIO official in the know. “The biggest FDI involving a marque company (IHH) 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.

Fortis’ trouble in India causes IHH financial report to be “qualified” by KPMG

In IHH’s Annual Report 2019, Tan acknowledged that as part of India Stock Exchange requirements, the initial deal for the stake required IHH to offer another 26% of the shares in Fortis Healthcare.

“We are committed to proceeding with our offer, but due to a stay order from India’s Supreme Court in December 2018 arising from ongoing investigations of the founders and previous owners of Fortis, we are unable to proceed with our Fortis Open Offer and Malar Open Offer until the stay order is lifted,” he said in the report.

In the report, IHH’s auditor, KPMG, had also issued a “Qualified Opinion” of IHH’s financial statement for FY2019:

“There are ongoing investigations by the Securities and Exchange Board of India (“SEBI”) and the Serious Fraud Investigation Office (“SFIO”), Ministry of Corporate Affairs of India,” KPMG noted.

“Due to the ongoing process of the various inquiries and investigations, the external auditors of Fortis are unable to determine if there are any regulatory non-compliances and additional adjustments or disclosures which may be necessary as a result of further findings of the ongoing or future regulatory or internal investigations and their consequential impact, if any, on the consolidated financial statements of Fortis.”

“Any consequential adjustments may be recorded either as adjustments to the assets acquired and liabilities assumed in the acquisition which will have an impact to the post-acquisition adjustments to be recognised in the financial statements of the Group in the period the adjustments are known.”

That is to say, the investigations by Indian authorities may impact the financial statements of Fortis, which then would impact the financial statements of IHH. Hence, as auditor of IHH, KPMG issued a “Qualified Opinion”.

“We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion,” KPMG concluded.

Given the problem faced by IHH in the acquisition of Fortis in India, it’s not known why Tan would want to leave IHH at the end of last year, instead of extending his contract to help sort out IHH’s acquisition problems with Fortis.

In any case, he left IHH and let his successor deal with Fortis problems while he went on joining PAP to participate in the upcoming GE.

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