NMC shares are still down a third after Muddy Waters’ short attack.

In mid-December, famed activist and short-seller fund Muddy Waters threw the book at Abu-Dhabi based NMC Healthcare. NMC is listed on the London Stock Exchange. Its shares plunged from 2585 pence on December 16 to 1300.50 pence on December 20, a fall of about 50%.

Carson Block’s Muddy Waters said it had “serious doubts” on NMC Health’s financial statements. Further, it alleged the healthcare company had manipulated these documents.

NMC Healthcare

NMC Health is UAE’s largest healthcare provider. Insider owners of about 60% of its shares include Dr B R Shetty and the Bin Butti family. Dr B R Shetty, a native of southwest India, founded NMC Health in 1975 in the UAE.

Moreover, NMC’s majority shareholders include Saeed Bin Butti (17.4% stake), Executive Vice Chair Khalifa Bin Butti (14.7%) and Joint Non-Executive Chair Bavaguthu Raghuram Shetty (15.9% interest). In addition, 7.3% belongs to joint Bin Butti vehicle Infinite investments.

Muddy Waters’ allegations against NMC

According to Muddy Waters:

• “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 behavior gives rise to concerns about fraudulent asset values and theft of company assets.”
• “NMC’s reported cash balances show two red flags that indicate they could be materially overstated.”
• “We believe that NMC has manipulated its balance sheet to understate debt.”
• “In our view, NMC also deliberately understated its debt by approximately $320 million as of FY 2018 by not reporting leases associated with its Aspen Healthcare acquisition as finance leases.”
• “Executive compensation has nearly tripled in two years to $18.7 million a year, and insiders have monetized material amounts of stock. We are unsure how deep the rot at NMC goes, but we do not believe that its insiders or financials can be trusted.”

NMC’s riposte

However, on December 20, NMC Health issued a point-by-point rebuttal of the accusations made by Carson Block.

Further, on December 23, NMC Health said it would launch an independent review by an unnamed accounting firm to counter the allegations.

In a section of its report, Muddy Waters raised doubts over the cost to redevelop NMC Royal Women’s Hospital: “First, we calculate the cost of the investment at approximately $7,700 / m2. This cost seems greatly out of line, as we would have expected $3,500 to $4,000 / m2.”

In response to this, on December 27, NMC reportedly responded with a written confirmation from the project’s engineering consultant. STH Consultant said the total built-up floor area of NMC Royal Women’s Hospital in Abu Dhabi was 18,595 metres sq.

The sparring continues

Muddy Waters dismissed the proposal for an independent review. “The unfortunate history of such reviews is that they are usually exercises in whitewashing that provide little to no transparency or accountability,” the firm said. “Companies such as Noble Group and Sino-Forest were both exonerated by their purportedly independent reviews, only to collapse later.”

It is uncertain how this fracas will finally play out.

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