(Alliance News) - NMC Health PLC late Thursday responded to the claims laid out by short selling firm Waters Capital LLC saying the claims were "false" and "misleading".
NMC said: "The company has a track record of significant, open and increasingly detailed disclosure to the market, as monitored and reviewed by its entirely independent disclosure committee. NMC will continue to provide information to advance investor understanding."
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 profit, and reported debt levels."
The stock closed down a massive 32% on Tuesday following the Muddy Waters claims and ended down 11% at 1,536.50 pence on Thursday.
Short selling is an investment or trading strategy that speculates on the decline in a stock.
Muddy Waters accused NMC of paying inflated prices for assets, and called the USD36.4 million acquisition of Premier Care Home Medical and Health Care in 2018 "a significant overpayment".
In response, NMC Thursday said Premier was acquired as a strategic investment to strengthen the current home healthcare program. Further, its niche specialised home dialysis business is an important addition to NMC's overall healthcare service offering.
NMC confirmed that the benchmark multiple for the homecare acquisitions ranged between 13 to 16 times enterprise value to earnings before interest tax depreciation and amortisation. NMC said this "provided management the comfort that the valuation of the Premier Group was reasonable".
Muddy Waters took aim at NMC's investment in redeveloping the Brightpoint Royal Women’s Hospital in 2014, saying it cost too much.
NMC noted "important factors" about the logistics of the Brightpoint development which led to structurally higher development costs. NMC said the construction of the hospital is vertical unlike other hospitals which tend to be horizontal. Moreover, it added, Brightpoint has 17 floors, each has to be equipped with independent standard fit-out requirements, such as nursing stations and medical gas provision, incurring additional costs.
NMC clarified that the capital expenditure spent on the project was USD80 million against a USD70 million budget.
Additionally, out of USD80 million capex cost, around USD13 million was spent on the cost of equipment and about USD67 million was spent on improvement of the building and fabric. The balance of the spend, of USD35 million was directed towards the lease and operational expense capitalisation of USD29 million and USD6 million respectively, NMC noted.
NMC said the capitalisation was done as per IFRS accounting standards and the accounting policies of the company which were "disclosed adequately in the relevant annual report".
"In order to compare the cost per square mtere, in the correct way, it is necessary to consider the actual capex number of US$80m and exclude lease capitalisation. Furthermore, the overall built-up area is c. 18,600 Sqm and not 14,000 Sqm. This brings down the cost per Sqm to USD4,300. This will be higher than a typical horizontal hospital set up in light of the asset-specific work required as mentioned above. It is significantly below the inflated costs assumed by Muddy Waters. Considering the above points, the comparison of development costs for Brightpoint as portrayed by Muddy Waters is erroneous," NMC said.
Muddy Waters also attacked NMC over its accountancy practises claiming NMC deliberately understated its debt by USD320 million in 2018 by not reporting leases associated with buying Aspen Healthcare as finance leases.
"We have reassessed and reconfirmed the lease accounting done by Aspen as of acquisition date and we were comfortable with the accounting of lease done by Aspen which was consistent as per IFRS and concluded it as operating lease. On acquisition of a business, the acquiror ordinarily assumes all assets and liabilities of the target... It is clear that since the lease was recorded as an operating lease in the books of the target, NMC too would record this as an operating lease and not finance lease," NMC said in response.
Addressing cash and debt facilities, NMC said it been in "high-growth delivery phase" backed by its long-term debt facilities.
"The modest financing fees incurred by NMC reflect normal course refinancing of such facilities. Furthermore, at each renewal/refinancing, NMC has successfully negotiated for better margins and commercial terms. The most important of which was converting the loan from secured loan to unsecured and without any restrictions on the collection from our receivables," NMC said.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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