December 17, 2019 / 10:54 AM / a month ago

UAE's NMC Health tanks as Muddy Waters takes short position

(Reuters) - U.S. short-selling firm Muddy Waters said on Tuesday it had acquired a short position in NMC Health Plc (NMC.L), criticising the healthcare group’s financial statements and wiping a third off the value of the company’s share price.

The short seller questioned the value of the London-listed firm’s assets and cash balance, as well as its reported profits and debts. Muddy Waters said in a research note that NMC’s asset purchase prices and capital expenditures were inflated.

NMC founder and Chairman Bavaguthu Raghuram Shetty said in an emailed statement sent to Reuters: “We hold ourselves to the highest standards across our entire portfolio.”

He said NMC, which is based in the United Arab Emirates, was “committed to offering world class facilities and vital services to all sections of the community.”

Britain’s financial watchdog declined to comment.

Shares in the healthcare provider closed 32.4% lower at 1,747.5 pence, capping a day at the bottom of London's bluechip index .FTSE. The company lost 1.75 billion pounds in value.

NMC, with operations in 17 countries, reported net debt and payables of $1.89 billion at the end of 2018. NMC said in October it expected double-digit revenue and core earnings growth in 2020.

Muddy Waters, known in financial markets for declaring short equity positions on the basis of its in-house research, said NMC’s reported cash balances could be “materially overstated” and said its margins were “too good to be true” relative to UAE-focused publicly traded firms Mediclinic (MDCM.L) and Aster DM Healthcare (ATRD.NS).

Shetty also founded Finablr (FINF.L), a London-listed payments and foreign exchange company, whose shares closed 11% lower on Tuesday. Shetty is also co-chairman of Finablr, according to its website.

Finablr could not immediately be reached for comment.

Shetty owns 19.22% of NMC and 62.68% of Finablr, according to Refinitiv data.

Broker Jefferies said on Monday its analysis of NMC accounts suggested additional downside risk to the firm’s reported numbers. Jefferies said complex cross-holdings added “conviction to our view that investors do not appreciate the risks” at NMC.

About 10% of NMC’s outstanding shares were in short position as of Dec. 13, according to FIS data. It was not immediately clear how much of that short position was accounted for by Muddy Waters, a company founded by American Carson Block.

Short sellers borrow shares and immediately sell them, betting the price will fall. They then buy the shares back and return them to the lender, aiming to pocket a capital gain.

Advocates say the practice puts a check on investor over-confidence and corporate spin. Critics say it destabilises markets because shortsellers have an interest in driving a company’s share price down.

Muddy Waters, which came to fame by betting against some Chinese companies, took its first short position in a London-listed company in August, when it bet against litigation funder Burford Capital (BURF.L).

Reporting by Noor Zainab Hussain in Bengaluru and Stanley Carvalho in Abu Dhabi, Kirstin Ridley and Carolyn Cohn in London; Editing by Saumyadeb Chakrabarty and Edmund Blair

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