(Alliance News) - Shares in NMC Health PLC dropped more than 20% on Tuesday morning following Muddy Waters Capital LLC's decision to short sell shares in the UAE-focused private healthcare company over "serious doubts" regarding financial statements.
Shares in NMC were down 23% at 1,990.00 in London on Tuesday morning, the worst performer in the FTSE 100.
Muddy Waters, which was founded by short-seller Carson Block, on Tuesday said: "We have serious doubts about the company's financial statements, including its asset values, cash balance, reported profits, and reported debt levels."
Short selling is an investment or trading strategy that speculates on the decline in a stock.
"At the worst of times, the company has invested in large assets at costs that we find too high to be plausible - including from parties we believe are de facto under common control. This behaviour gives rise to concerns about fraudulent asset values and theft of company assets," Muddy Waters added.
Muddy Waters believes NMC has mislead shareholders by "trying to give investors the (false) impression it does not engage in reverse factoring, and by understating (we believe intentionally) lease debt".
The Muddy Waters report particularly highlights a USD107.4 million investment by NMC in the redevelopment of NMC Royal Women's Hospital, previously known as Brightpoint Royal Women's Hospital.
"Red flags" in this investment include the cost being USD7,700 per metre squared, exceeding Muddy Waters' expectation of USD3,500 to USD4,000 per metre squared. Further, NMC's decision not to disclose that the contractor responsible for the renovation work on the hospital "appears to be de facto controlled by BR Shetty" Muddy Waters highlighted.
Further, Muddy Waters found "some indications" that KBBO Group, "controlled by NMC insider Khalifa Bin Butti", also had some involvement in the development.
NMC's majority shareholders include Saeed Bin Butti who holds a 17.4% stake and 14.7% is owned by Executive Vice Chair Khalifa Bin Butti and Joint Non Executive Chair Bavaguthu Raghuram Shetty owns a 15.9% interest. In addition, 7.3% belongs to joint Bin Butti vehicle Infinite investments.
Another investment which concerned Muddy Waters was a USD36.4 million purchase by NMC of 70% of Premier Care Home Medical & Health Care LLC.
"Our investigators' findings show that it was an insignificant company when purchased, reportedly with only approximately 10 employees. Multiple industry sources who were familiar with the company expressed amazement to our investigators when informed of the purchase price," Muddy Waters said.
Muddy Waters also accused NMC, which has its corporate office in Abu Dhabi and operates in the United Arab Emirates, of manipulating its balance sheet so as to understate its debt, with "many investors" being "under the impression that NMC does not use reverse factoring".
The short-seller additionally claimed NMC has understated its debt to the tune of around USD320 million as of financial 2018 by failing to report leases concerning its Aspen Healthcare acquisition as finance leases.
Earlier in the day, NMC said its USD90 million tender offer for convertible bonds was taken up in full. The final buyback price for the bonds was set at 92.5%, expressed as a percentage of the principal bond amount. Bondholders who accepted the invitation are to receive, on Friday this week, a cash payment equal to the final buyback price plus accrued unpaid interest
Once the accepted bonds are tendered, USD360 million worth of bonds will remain outstanding.
By Anna Farley; annafarley@alliancenews.com
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