NMC commentary from Bellevue7 May 2020 14:31
The central tenet of any due diligence process begins with a company’s audited regulatory filings, which contain a statement from the auditor attesting that they reflect a “true and fair view” of the entity. Unfortunately, this turned out not to be the case for one of our investments.
In the case of NMC, the group’s indebtedness was grossly understated to the tune of $4.5bn (actual debt of $6.6bn vs. last reported of $2.1bn as at 30 June, 2019) with such deception remaining undetected and going back to at least early 2018. In the UK, the FCA has launched a formal investigation and criminal proceedings have been launched both in the UAE and in the UK.
Clearly NMC’s directors, management and auditors (E&Y) will have questions to answer. Along with numerous others, BBH is unfortunately also a victim of this crime.
The Trust has held a position in NMC since May 2019 and. We were aware of questions about governance and accounting then, and subsequently, but we felt these concerns were reflected in NMC’s share price, making it a well positioned play on expansion of developing market healthcare provision. Indeed, this holding generated a positive return for investors during FY2019.
However, on 26th February NMC announced the uncovering of significant accounting discrepancies and that the CEO had been dismissed. The shares were subsequently suspended the following morning, before the market open.
During March, as the full extent of the fraud became clear, the valuation of the Trust’s holding in NMC was progressively impaired by BBH’s board, such that it represented 0.7% of the Trust’s gross investments at the end of March (having
peaked at 3.0% of gross assets in September 2019). At that time, discussions were continuing around a debt re-negotiation and recapitalisation. However, on 9th April, NMC was placed into administration and the stake’s value has now been written down to zero.
This is a very disappointing outcome and is a reminder of the limitations of due diligence and audited accounts in the face of criminality. We will not report NMC as an active position moving forward, but will continually evaluate potential value recovery strategies for the Trust as the legal picture becomes clearer.
https://www.bellevue.ch/index.php?eID=tx_securedownloads&p=1215&u=12&g=1%2C3&t=1588944214&hash=56c5dd7d66371e5a460a5fa667711b848eec133e&file=fileadmin/user_upload/files/Bellevue/Products/Factsheets/factsheet_2004_BB_Healthcare_Trust_plc_BB_Healthcare_Trust__LSE_-GBP_GB00BZCNLL95_global_en.pdf
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