UK financial regulator to probe NMC Health
Company suspends trading of its shares on London exchange
Britain’s Financial Conduct Authority (FCA) will investigate NMC Health, the UAE health care company said yesterday, after trading in its shares on the London stock exchange was suspended.
The news comes on a day NMC dismissed its CEO Prasanth Manghat and sent its chief financial officer Prashanth Shenoy on extended sick leave following its own ongoing investigation into its finances.
NMC, part of the FTSE 100 index, said it would cooperate with authorities as it sought to provide “clarity to the market as to its financial position”.
NMC’s shares have lost about two thirds of their value since US-based short-seller Muddy Waters first questioned its financial statements in December of last year. NMC’s own review is being led by former FBI boss Louis Freeh.
Businesses owned by founder B.R. Shetty and former vicechairman Khaleefa Bin Butti borrowed money from NMC’s supply-chain finance lender, according to the company.
NMC guaranteed repayment of those $335 million of borrowings, and the board was unaware of these arrangements, which had been in place since early 2018, NMC said.
NMC yesterday dismissed its CEO Prasanth Manghat and sent its chief financial officer Prashanth Shenoy on extended sick leave.
The CEO of NMC Health, Prasanth Manghat, has been dismissed. His role will be taken over by the current Chief Operating Officer, Michael Davis, on an interim basis.
The Chief Financial Officer, Prashanth Shenoy, has also been granted extended leave, according to Bloomberg.
Market watchers say they did not see the CEO’s dismissal coming. “It was felt that the problems at NMC Health would be confined to its key shareholders, Dr. B.R. Shetty and the two UAE nationals,” said a source with close ties to the company. “Prashant Manghat was having a brilliant tenure as CEO — NMC Health turned in its best financial performance in 2018.
“For him to be dismissed thus, it means there could be a wholesale change of the senior executive team as well.”
NMC Health, which is listed on London Stock Exchange, is shortly expected to announce its 2019 results. The market is again expecting a fairly strong set of numbers.
Shetty announced last week he was stepping down as Chairman of the company he founded in the 1970s and built into the UAE’s largest privately-owned health care operator. This followed an internal investigation that was launched into Dr. Shetty’s shareholding and whether there were discrepancies between what was officially revealed and the actuals. “NMC Health should come out with an official statement on the reasons behind Prashant’s dismissal — all stakeholders and the public will require answers,” said a senior health care industry official.
Troubled months
The problems at NMC Health started out of the blue in the final days of December last. Muddy Waters, a US investment firm, announced that NMC’s balance sheet was showing gaps and directly pointed the fingers at the management and senior shareholders for not being transparent enough about its workings.
NMC Health initially put out a stout defence against Muddy Waters’ charges, while launching an internal investigation.
As part of this process that Dr. Shetty was barred from participating in any discussions or decisions taken by the Board of Directors. It was then that Dr. Shetty announced the stepping down as chairman pending the completion of the investigation.
And on Wednesday (February 26), NMC Health said the investigation committee had identified supply chain financing arrangements that were entered into, and “which are understood to have been used” by entities controlled by Dr. Shetty and former vice-chairman and key shareholder Khaleefa Butti Omair Yousif Ahmad Al Muhairi.
Stock’s doing well … for now
Immediately after the Muddy Waters’ revelations, the high-flying NMC Health stock went into a deep dive. (This is a stock that is among the FTSE 100.)
“The stock had reached its bottom on February 7, around the time pointed questions
were raised about Dr. Shetty’s continuing role as chairman,” said Hussain Alladdin, Head of Research at GCP, a consultancy. “But since then, the stock price has been on the mend, gaining 30 per cent.
“The announcement that a billionaire-investor (Richard Chandler of Clermont Group) is picking up shares in NMC Health seems to have boosted the value. Chandler is taking a stance against Muddy Waters — so, the NMC Health share still has a lot of positives going for it.
“The upcoming 2019 result announcement could provide another booster.”
In recent weeks, there had been speculation of NMC Health being a prime takeover target. Investment firms were supposedly circling the company, more so after its stock price dive.
From its all-time high on August 10, 2018, the “Stock’s down nearly 70 per cent, but since February 7, there’s the 30 per cent push upwards,” said Alladdin. “Now, if the 2019 results cheer investors, the stock could get another partial lift.
“Of course, if Richard Chandler keeps buying NMC stock, that too should be good news.” (Currently, Chandler has a less than 2 per cent stake.)
The announcement that a billionaireinvestor (Richard Chandler of Clermont Group) is picking up shares in NMC Health seems to have boosted the value.”
Hussain Alladdin
| Head of Research at GCP