NMC Suspends Chairman From Board Discussions Amid Review

(Bloomberg) --

NMC Health Plc, the operator of the biggest network of hospitals in the United Arab Emirates, said its chairman will be removed from board discussions after he said he may have misreported the size of his stake.

Chairman Bavaguthu Raghuram Shetty is conducting a legal review into the size of his stake, NMC said Monday. The company is asking its main shareholders for clarity on whether they have pledged any of their holdings as collateral, amid speculation in the market they may have faced a margin call. The stock, which lost almost half its value last week, rose 32% Monday in London.

The controlling shareholders “have lost their credibility with investors” and therefore distancing them from the board is a positive move, said Abdulla Nahlawi, an analyst at Rasmala Investment Bank in Dubai.

Monday’s disclosures compound the turmoil surrounding NMC, which has been the target of short seller Muddy Waters Capital LLC since December. The health care company is conducting an independent review after the hedge fund alleged that the company manipulated its balance sheet and inflated the prices of assets it purchased.

“What we found is likely just the tip of the iceberg,” Carson Block, the founder of Muddy Waters, said by email. “As for the notion that NMC might receive private equity bids, it’s hard for us to believe they would survive due diligence.”

NMC has asked Shetty and Vice Chairman Khaleefa Butti Omair Yousif Ahmed Al Muhairi not to attend any board meetings until the size of their stakes is clarified. The company said the board will make a decision about whether Shetty and Butti should remain as company directors. The news about founder Shetty’s stake increased speculation that NMC’s biggest shareholders faced margin calls and have been forced to sell shares.

The company said Kohlberg Kravis Roberts & Co. and GK Investment made “highly preliminary” approaches, following a report in the Mail on Sunday that said KKR held talks with NMC in recent weeks about a 2 billion-pound ($2.6 billion) takeover but couldn’t agree on the price.

The hospital operator said neither party made any offer and no terms were discussed. Ludo Bammens, a spokesman for KKR, wasn’t immediately available for comment.

NMC shares have lost almost two-thirds of their value since the Muddy Waters report came to light on Dec. 17, leaving the company a market value of about 1.9 billion pounds. The company has said the allegations are false and misleading.

Insufficient disclosure of related-party transactions, manipulation of the balance sheet and inflated asset purchases are some of Muddy Waters’s most serious allegations. NMC’s $107 million redevelopment of NMC Royal Women’s Hospital in Abu Dhabi “contains numerous red flags,” the short seller said. NMC also appears to have paid too much for a stake in Premier Care Home Medical and Health Care LLC, the report alleged.

NMC’s margins are “too good to be true” relative to peers, Muddy Waters said at the time. “We are unsure how deep the rot at NMC goes, but we do not believe that its insiders or financials can be trusted.”

A native of India, Shetty moved to Abu Dhabi and founded NMC in the 1970s. It’s now the biggest private health-care provider in the United Arab Emirates.

--With assistance from Filipe Pacheco, Lisa Pham and Jan-Henrik Förster.

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Anne Pollak, John Lauerman

©2020 Bloomberg L.P.