One of the most heavily shorted stocks in the FTSE 100 and United Arab Emirates’ largest private healthcare provider share price dropped significantly in December and January. More than £2bn was wiped from the value of NMC Health PLC (LON: NMC) after there were “serious doubts” about the group’s finances in a report by US short-seller Muddy Waters in December. Subsequent selling of NMC’s stock by its 2 biggest shareholders caused the stock price to tumble once more.
NMC was founded in the city of Abu Dhabi in 1974 as a small pharmacy and clinic. Growing rapidly through a series of acquisitions, it listed its shares on the London Stock Exchange in 2012 and joined the FTSE 100 index in 2017. NMC, centred in the Middle East, now owns and manages a network of hospitals, medical centres and fertility clinics across 19 countries, and reported revenues of $2.1bn last year.
In a 34-page report published in December, Muddy Waters harboured doubts over the group’s asset values, cash balance, reported profits and debt levels. Combined with this was the potential overpayment for acquisitions, inflated margins and understated debt as well as poor corporate governance of a group controlled by a small group of UAE-based billionaires. Shares dropped by as much as 42% from £25.85 and wiped £2.3 billion off the company’s market value. The stock eventually closed 32.4% down at £17.48, representing a decrease of £1.8 billion.
NMC disagreed with the report, calling it “false and misleading.” Muddy Waters in particular suggested that the price paid for the development of the BridgePoint Hospital in Abu Dhabi represents a “significant overpayment.” In contrast, NMC said that the “structurally higher development costs” reflected a number of factors, including the 17-storey construction of the hospital, technical issues relating to floor weight and cladding and the accounting policies of the company.
On January 8th 2020, two controlling shareholders in NMC sold a £375m stake in order to cover debts linked to the shares. Saeed Bin Butti and his relative Khalifa Bin Butti, sold a combined 15 per cent stake in the group at £12 a share. The money will be used to repay debt provided by Credit Suisse and Deutsche Bank. As a result, share prices in the healthcare company decreased by 14% to £12.83.
On January 17th NMC announced the appointment of a former high-profile FBI director to carry out an independent investigation into allegations over financial irregularities. Louis Freeh, a former federal judge and FBI boss led an internal probe into allegations over the BP oil-spill claims. His firm – Freeh Group International Solutions – was also hired by former star fund manager Neil Woodford to investigate a biotech business that was attacked by a short seller in which his fund held a stake. From this announcement, the share price of NMC jumped by 8% to £15.65.
Overall, NMC Health eagerly awaits the report by Louis Freeh concerning their finances. The outcome of this report will clearly determine whether their share price will fall even further than before or recover somewhat to its previous level.
By Jason Chau
Sector Leader: Nicolas Bouchez