Ongoing financial turmoil and questions over its corporate governance structures have caused analysts to downgrade the credit rating of money transfer giant Travelex, amid ties to troubled firm NMC Health through its founder.
NMC founder and former chief executive BR Shetty and his son own 66 per cent of shares in Finablr — the sole owner of Travelex — while the former sits on the company’s board. In January this year, Shetty placed around 56 per cent of Finablr’s share capital as security for borrowing at his own financial vehicle BRSV.
Analysts at S&P Global have voiced concerns that the current debt situation at Travelex is “unsustainable”, and that loans made by Shetty using capital at its owner Finablr could, if breached, trigger a mandatory repayment of more than €360m in outstanding notes at Travelex.
Moreover the independence of Finablr’s board has been brought into question as a result of Shetty’s position at the company and his role in ongoing investigations at NMC.
Regulators last week opened a formal investigation into NMC, after the company revealed unauthorised financing which was not disclosed on its balance sheet. Shetty, an Indian billionaire who quit the board of NMC last week, is at the centre of its investigation alongside all other former members of NMC’s board, its former chief executive and some members of its treasury team.
“Dr. Shetty continues to remain on Finablr’s board, bringing to question its independence and we cannot rule out the possibility that market participants may view corporate governance controls at Finablr as weak,” analysts wrote in a note.
The agency downgraded Travelex’s credit rating from B- to CCC. It also placed Travelex on notice for a further downgrade, if corporate governance issues are formally raised by shareholders, or it has reason to suspect a potential breach of the company’s revolving credit facility or of BRSV’s loan.
The trouble at NMC Health has affected both Finablr and Travelex directly, causing major falls in both share price and bond price. As a result of the fall in value, Finablr was today demoted from London’s FTSE 250 index.
S&P Global also linked the downgrade to an update from Travelex on the knock-on effects of a New Year’s Eve ransomware attack, combined with lower transaction volumes from the spread of coronavirus. Travelex said the problems will reduce its underlying earnings for the first quarter of 2020 by £25m, while disruption from the virus could also weigh on full-year earnings.
“In our view, the effect would be to make the capital structure deeply unsustainable,” analysts wrote.
Spokespeople for Travelex and Finablr did not respond to requests for comment.
In its trading update earlier this week, the company wrote: “At present, Travelex does not expect the cyber attack to have any material impact on trading during our peak periods in [the second and third quarters of] 2020 which contribute a large proportion of Travelex’s annual Ebitda.
“Travelex’s current expectation is that the results for the [full year] would reflect the benefit of the cyber insurance policy and cost actions taken by the business. The extent of Covid-19 and the period for which it continues cannot be predicted at this time.”