NMC Health Plc fired its chief executive officer as it revealed financial discrepancies that have worsened the crisis for the Middle Eastern hospital chain targeted by short seller Muddy Waters Capital LLC.
Founder Bavaguthu Raghuram Shetty and former Vice Chairman Khaleefa Bin Butti controlled entities used for NMC’s supply chain financing, the company said late Wednesday. The board was unaware of these financial arrangements, which had been in place since early 2018, NMC said. Shetty was forced off the board earlier this month amid concerns he’d misrepresented his shareholdings.
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.
NMC’s shares were halted in London as it sought to provide “clarity to the market as to its financial position, according to a statement. 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 percent.
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.