NMC Finance Discrepancy Probed by Regulator as CEO Is Fired

(Bloomberg) -- The U.K.’s Financial Conduct Authority has opened an investigation into NMC Health Plc after the troubled Middle Eastern hospital operator fired its chief executive officer and revealed financial discrepancies.

The formal probe deepens the crisis at NMC after it was targeted by short seller Muddy Waters Capital LLC. The shares were halted in London earlier on Thursday as the company sought to provide “clarity to the market as to its financial position.”

Businesses owned by founder Bavaguthu Raghuram Shetty and former Vice Chairman 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 will continue to co-operate with the FCA and any and all other relevant authorities,” the company said in a statement. The regulator’s probe was confirmed by a spokesman for the agency.

The company delayed reporting its 2019 results, planned for March, until at least the end of April. NMC looks certain to be removed from the FTSE 100 Index at the rebalance next month. Shares of Finablr, the financial services firm also founded by Shetty, lost as much as 23%.

Operator of the largest medical network in the United Arab Emirates, NMC announced a management overhaul along with the latest revelations. CEO Prasanth Manghat was dismissed, and Chief Financial Officer Prashanth Shenoy has been granted extended sick leave. An unnamed member of the treasury team was suspended because of “a belief that the independent review has been obstructed,” and the company is looking at whether others are involved.

“At this point, the company’s announcements speak for themselves and seem to be even more damning than our initial report was,” Muddy Waters founder Carson Block said Wednesday in an email.

Shares Halted

A native of southwest India, Shetty moved to Abu Dhabi in 1973 and founded NMC in 1975. Before the Muddy Waters report, NMC’s shares had risen more than 12-fold since listing in London eight years ago. They peaked last year after joining a select group of companies in the Arab world worth more than $10 billion. Law firm Herbert Smith Freehills has launched a review of Shetty’s holdings at his request.

The company’s market value is now about 2 billion pounds ($2.6 billion).

The company’s troubles began in December when a Muddy Waters report alleged that NMC appeared to have overpaid for redeveloping an Abu Dhabi hospital and for a stake in Premier Care Home Medical and Health Care LLC. The short seller said NMC’s margins appeared high in comparison with rivals, and its cash balances were high in relation to the amount of interest the company reported earning. Shares of the company fell by about a third the day of the report.

NMC commissioned an independent review in January, led by former FBI Director Louis Freeh. Interim findings given to the board Wednesday revealed more financial liabilities that hadn’t been disclosed, including the supply chain financing agreements. The value of the drawdown on the facilities was $335 million as of the end of 2019, and the company said it’s trying to determine the current value.

Manghat will be succeeded on an interim basis by Michael Davis, currently chief operating officer, with immediate effect.

©2020 Bloomberg L.P.

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