News Analysis: Legal tussle; premature to vaticinate
- US fund seeks US$6.5b in damages on the issuance of the shares of Fortis Healthcare, along with a number of defendants and non-party defendants.
- IHH believes it has strong grounds to seek dismissal and intends to file a Motion of Dismiss
- Overhang on the share price will likely be temporary if IHH is successful in obtaining the dismissal.
- Maintain BUY; TP of RM7.20 / S$2.32
US fund seeks US$6.5b in damages on issuance of shares of Fortis Healthcare. IHH has been filed a lawsuit by a US Fund, Emqore Envesecure Private Capital Trust (“Emqore”), along with 28 named defendants and 20 non-party defendants. Emqore is seeking US$6.5b in damages. Emqore’s claim against IHH arises from and / or relates to allegations relating to the issuance of the shares of Fortis Healthcare in 2018.
IHH announced that Emqore Envesecure Private Capital Trust has filed a suit against, among others, IHH on 16 June 2020. On 26 July 2021, IHH was served with Emqore’s original complaint and Emqore’s Motion to original complaint. The Motion to Amend was pending adjudication before the US District Court until 3 Dec 2021 when Emqore’s amended complaint was filed at the US District Court. Emqore broadly alleges that it has purportedly suffered losses as the defendants had allegedly conspired to frustrate a proposed share acquisition transaction between Fortis and Emqore’s supposed predecessors.
According to the Amended Complaint, Emqore is seeking for, among others, damages in excess of US$6.5b comprising compensatory damages plus treble damages and attorneys’ fees pursuant to the US Racketeer, Influenced and Corrupt Organizations Act, against 28 named defendants and 20 non-party defendants.
IHH believes it has strong grounds to seek dismissal and intends to file a Motion of Dismiss. Based on the announcement, it is not possible to determine the estimated potential liability to IHH arising from the Suit as it involves a number of parties. However, IHH is of the view that it has strong grounds for seeking dismissal of Emqore’s claims and intends to file a Motion to Dismiss Emqore’s Amended Complaint on 3 principal grounds, i) lack of personal jurisdiction, forum non conveniens and failure to state a claim for relief.
Our Views
While the lawsuit of US$6.5b appears to be a large amount at first glance, it involves a number of defendants and non-party defendants, as such, the estimated potential liability on IHH is not possible to be determined as this juncture. With legal issues surrounding Fortis Healthcare are ongoing, this may cause near-term overhang on the share price of IHH and Fortis Healthcare. However, given IHH’s confidence in seeking dismissal for Emqore’s claims, we believe the overhang will be temporary. If IHH is successful in obtaining the dismissal on this lawsuit quickly, the overhang will be short-lived.
Despite the legal challenges, Fortis Healthcare has been delivering good operational performance since IHH took over management control. Share price had risen c.50% from the low before the pandemic and rerated almost 3 folds since the low in 3Q2019.