Shares in healthcare centre operator NMC Health (NMC) plunged more than 27% to £19.18 after US research firm Muddy Waters revealed it is shorting the stock.
Muddy Waters, which earlier this year targeted popular retail stock Burford Capital (BUR:AIM), said it was shorting NMC Health because of ‘serious doubts’ over the company’s balance sheet.
Muddy Waters, founded by well-known short seller Carson Block, noted concerns specifically about NMC’s asset values, cash balance, reported profits and reported debt levels.
Changes in the disclosed short positions in NMC Health over this year can be seen in the chart below, though this data does not include any changes today.
In a report outlining its position Muddy Waters said, ‘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 behaviour gives rise to concerns about fraudulent asset values and theft of company assets.
‘At somewhat better times, the company seems to “only” materially mislead, such as by trying to give investors the (false) impression it does not engage in reverse factoring, and by understating (we believe intentionally) lease debt.’
‘NUMEROUS RED FLAGS’
In particular, Muddy Waters highlighted NMC’s $104.7m investment in redeveloping the NMC Royal Women’s Hospital as containing ‘numerous red flags’, while its $36.4m purchase of a 70% stake in Premier Care Home Medical and Health Care LLC ‘appears to also be a significant overpayment.’
The report also said that NMC’s margins appear ‘too good to be true’ compared to its peers, Mediclinic International (MDC) and Aster DM Healthcare.
It added that it believes NMC has ‘manipulated its balance sheet to understate debt’, and highlighted that many investors were not aware of the company’s use of reverse factoring, something which Muddy Waters said was not included in its debt figures.
READ MORE ABOUT NMC HEALTH HERE
Reverse factoring is where a finance company, such as a bank, puts itself between a company and its suppliers and agrees to pay the company’s invoices at a quicker rate in exchange for a discount.
The Muddy Waters report concluded, ‘Each of these problems would be less likely to exist if NMC had sufficient governance. In our view, it falls well short. We do not see the independent board members as being truly independent.
‘The company’s relationship with its auditor, Ernst & Young raises flags. Executive compensation has nearly tripled in two years to $18.7m a year, and insiders have monetized material amounts of stock.’
NMC Health has been contacted for comment.
