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NMC sacks CEO, confirms major balance sheet issues

Investigation says $335m in supply chain financing was raised by BR Shetty and fellow director without board's knowledge
February 26, 2020

NMC Health (NMC) has sacked its chief executive Prasanth Manghat and revealed major debt was raised by former board members through supply chain financing after vociferously denying the practice in December. NMC's shares were suspended on Thursday morning. 

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The Middle East-focused hospital owner and operator has allowed finance chief Prashanth Shenoy to go on “extended sick leave”. It has also said it believes that the investigation into its own books was obstructed and a member of the treasury team has been suspended. The release of the company’s 2019 results, expected in March, have been delayed until April as a result of the investigation’s initial findings. 

This week, NMC also notified the market that two major shareholders, Saeed Mohamed Butti Mohamed Khalfan Al Qebaisi and Khaleefa Butti Omair Yousif Ahmed Al Muhairi, dropped their holdings significantly by handing control of some shares to adviser Ithmar Capital Partners on 1 March. Mr Al Muhairi's stake went from 19.7 per cent to 3.1 per cent, and Mr Al Qebaisi went from 11.4 per cent to 5 per cent. 

The company has been under heavy scrutiny since hedge fund Muddy Waters released a research report in mid-December. The short specialist said the company’s cash and debt figures were not accurate, partly because of supply chain financing. NMC said in the post-close announcement on 26 February investigators had “identified potential discrepancies and inconsistencies in the company’s bank statements and ledger entries”. 

NMC has previously said it had used supply chain financing, which as an off-balance-sheet facility would not appear as debt, but maintained its accounting practices were above board and the balances appeared in the trade payables section of the balance sheet. 

“These facilities remain commercial matters for these suppliers and only have recourse to them,” NMC said in December.

 Now, the healthcare company said its board and Freeh Group investigations had uncovered facilities organised by founder BR Shetty and Mr Al Muhairi with $335m (£259m) drawn down as of 31 December. 

“Under these arrangements, suppliers to companies owned by [Dr Shetty and Mr Al Muhairi] were paid by certain credit facility providers and, while those companies are responsible for settling the amounts payable to the credit facility providers, the contractual obligation rests with NMC, which has also provided a guarantee in the event of non-payment or default,” NMC said. The company had previously said the suppliers were liable for the loans. 

“These arrangements were not disclosed to, or approved by, the board and were not disclosed as related party transactions in accordance with the listing rules,” the company said. 

In a statement, Mr Al Muhairi said he had not been given a "reasonable opportunity" to help investigators, and denied any wrongdoing. 

Dr Shetty, who founded the company in the 1970s, quit the board on 17 February amid questions over how many shares he owned. His advisoers had notified the company that 20m shares that had been listed as his were potentially the property of Mr Al Muhairi and fellow major shareholder Mr Al Qebaisi. Mr Al Muhairi had quit as vice-chairman days earlier over the share ownership uncertainty. 

Dr Shetty also owns a major stake in Finablr (FIN), which was also demanding he work out how many shares he had after the revelations.

*Article was updated Tuesday 3 March 2020