Short-seller Muddy Waters has launched an attack on Abu Dhabi-based NMC Health (NMC) and sent its share price crashing down over 30 per cent.
In a report, Muddy Waters alleges that NMC, which runs hospitals and health services in the Middle East, has inflated asset purchase prices and its cash balances, which are the “hallmarks of significant fraud”, as well as understating its debt by $320m (£243m) in 2018.
NMC said Muddy Waters' allegations "appear principally unfounded, baseless and misleading, containing many errors of fact". The company said it would issue a more detailed rebuttal in due course.
This is the investment firm’s second big move on a London-listed company this year, going after litigation funder Burford Capital (BUR) in August.
Several hedge funds already have public short positions in NMC, according to the Financial Conduct Authority, including AQR Capital Management, with a 2.7 per cent net short position.
Muddy Waters’ critique is broad but the fund has provided examples where it says NMC has overpaid for assets, including $107m (£81m) for the NMC Royal Women’s Hospital in Abu Dhabi. The fund said the price paid was around $7,700 per square metre, against Muddy Waters’ expectation of $3,500-4,000 per square metre cost. The report also alleges the hospital was renovated by a company “de facto controlled” by NMC founder and major shareholder BR Shetty.
In its statement, NMC also highlighted existing actions to improve governance. These include a related party transaction committee on the board, and the planned appointment of a compliance officer in early 2020.
The short-seller said that the cash balance of $491m as of 31 December last year was suspicious because of the “low interest” paid out. NMC’s interest income yield for 2018 was 0.77 per cent, compared with Mediclinic International’s (MDC) 3.41 per cent yield. The under-reported debt accusation is based on lease reporting after the purchase of a company called Aspen Healthcare, where it says NMC did not report capital lease obligations Aspen’s former owner had previously.
Muddy Waters is coming off a short attack loss in China in July, after it said sportswear company Anta boosted its margins “fraudulently”. The company saw a share price dip in Hong Kong in early July after the fund issued a report about it, but is now worth a third more than before the attack.
