Fortis accuses AFC Health of using its trade name without consent

Fortis Healthcare, a chain of private hospitals headquartered in India, has alleged that AFC Health has provided false information and misused the Fortis trade name without consent in order to secure approval for its initial public offering (IPO).

"AFC has made several incorrect statements and representations [in violation of applicable law]," the Gurugram-based multihospital system said in a statement to the Bangladesh Securities and Exchange Commission (BSEC).

"This was done with the dishonest intent to misuse its affiliation with the Fortis Escorts Heart Institute and Fortis Healthstaff to mislead the general investors of Bangladesh," it added.

AFC Health, a local medical company which operates tertiary level cardiac care facilities in Cumilla, Khulna and Chattogram, received approval from the BSEC on September 16 to raise Tk 17 crore from the stock market by issuing 1.7 crore ordinary shares.

In its IPO prospectus, AFC Health said that under an agreement with Fortis Healthcare, the Indian multihospital system would provide efficient and effective operation and management services.

However, in its letter to the stock market regulator, Fortis alleged that this agreement is only applicable for AFC's facilities in certain geographic territories, namely Khulna and Chattogram.

"Therefore, AFC does not have the right to use the Fortis trade name for healthcare facilities at any other location, such as Cumilla and Jessore," it said.

Fortis was only made aware of AFC's Cumilla and Jessore facilities after the company's IPO prospectus was announced.

"This is a material breach of the terms of the agreement on part of the AFC," Fortis said in its letter.

In fact, since 2017, there have been several payment defaults by AFC under each agreement, due to which many now stand inoperative, it added.

AFC has repeatedly assured that the payments would be made and that the terms of each agreement would be mutually revised by the parties.

Believing these assurances to be true, Fortis participated in discussions with the company in good faith until as recently as March this year.

And while the agreement has remained inoperative since 2018, Fortis did not ask AFC to stop using the trade name in hopes that the terms would eventually be revised by both parties.

However, Fortis never intended to allow the use of its brand without receiving payments in lieu thereof, the letter read.

In light of the situation, Fortis has urged the BSEC to open an investigation and subsequently take action against AFC as necessary for its alleged attempt to mislead general investors.

The stock market regulator should find the people responsible for this false information, including the underwriters and auditors who held draw up AFC's IPO prospectus, it said.

Fortis's management team was recently changed when IHH Healthcare Berhad, a leading healthcare group based in Malaysia, took over the Indian company, according to Toufiq Hasan, general manager of AFC Health.

"The new management are not well informed about the terms since we reached an agreement for our Cumilla Hospital on May 10, 2017," he said.

Meanwhile, the Jashore unit is just an outreach clinic where visiting doctors from the Khulna hospital check on local patients.

"Somehow it was a misunderstanding with the new management so we have already started to talk with them and are going to submit our clarification to the BSEC today [yesterday]," Hasan said, adding that AFC has a 15-year agreement with Fortis.

About the non-payment issue, the general manager said that they are currently in the process of making payments.

Previously on October 27, the Dhaka Stock Exchange (DSE) sent an observation to the BSEC on AFC's listing, saying that most of the company's trade licences had expired between June 2018 and June 2019.

The expired licences include: AFC's import registration certificate, fire licence, licence for running a private hospital and pathological lab, drug licence, and environment clearance certificate.

Besides, the company did not distribute or utilise the workers' profit participation fund as per the Bangladesh Labour Act for the fiscal year that ended on June 30, 2018.

Citing the AFC's audit report, the DSE said that there seem to be exceptions to the accounting standards in preparing and presenting financial statements.

AFC responded by saying that they have already reapplied for these licences.