UAE: NMC boss axed and shares suspended

NMC Health Al Zahra Hospital, Sharjah

Trading in the shares of NMC Health has been suspended and chief executive Prasanth Manghat has been removed with immediate effect (26 February).

The London-listed company also announced that its chief financial officer, Prashanth Shenoy, had been granted extended sick leave.

The board has asked Michael Davis, current chief operating officer, to assume the position as interim CEO for the foreseeable future.

The private healthcare operator has been facing severe scrutiny since December when US short seller Muddy Waters published a damaging report calling into question the company’s finances and governance, resulting in NMC commissioning an independent review into its finances led by former FBI director Louis Freeh.

When published in mid-December, Muddy Waters said that it had ‘serious doubts about the company’s financial statements, including its asset values, cash balance, reported profits, and reported debt levels.’

The due diligence specialist went on to say that NMC had ‘deliberately understated’ its debt by around US$320m.

Since then NMC’s share have lost around 70% of their value.

This past month the largest healthcare operator in the UAE has seen its shares value continue to plummet and its founder and chairman, BR Shetty resign, along with three other significant shareholders and board members.

There had been a glimmer of hope for the company and its shares jumped following an announcement (10 February) that it had ‘received highly preliminary approaches from Kohlberg Kravis Roberts [KKR] and GK Investment regarding possible offers for the company.’

That glimmer, however, had faded slightly by the following day after private equity giant KKR denied that it had made a proposal ‘nor discussed with NMC the terms of any possible offer’. More to the point, it said that it did not intend to make one.

On the other, GKSD Investment, which is backed by sponsors of Italy’s Gruppo San Donato, confirmed its interest. It admitted that GK Investment, as its adviser, had made the approach on its behalf and it was ‘in the preliminary stages of considering an offer for NMC’.

The company has been dealt yet another blow following an update from the independent review committee.

Interim findings published on 26 February raised potential discrepancies and inconsistencies in the company’s cash position and uncovered a supply chain financing arrangement understood to have been used by its founder as well as a major shareholder that was guaranteed by NMC, but not approved by the board or disclosed to the market.

The draw-down on the facilities as of 31 December 2019 was approximately US$335m and the current draw-down on the facilities is the subject of ongoing verification.

James Vane-Tempest, analyst at Jefferies, said in a report, however, that it estimates US$2.5bn of total debt.

‘As NMC states that the current drawdown of supply chain facilities is unknown, we assume $2.5bn of total debt. We also believe it may be prudent to consider the possibility that at FY there may be some adjs to profitability,’ he said.

As a result of these issues and a belief that the independent review has been obstructed, one member of NMC’s treasury team has been suspended, and the company does not expect to be in a position to publish its FY2019 before the end of April.

In response to the changes Carson Block, founder of Muddy Waters, said: ‘At this point, the company’s announcements speak for themselves and seem to be even more damning than our initial report was.’

Trading in the shares of NMC have been suspended in the wake of this even deeper financial scandal.

In a statement, NMC said that the Financial Conduct Authority had agreed to its request for the temporary suspension of its shares ‘to ensure the smooth operation of the market’.

The company said that it is focused on providing additional clarity to the market as to its financial position and to restoring its admission to trading.

Founded in 1974 in Abu Dhabi, NMC owns and manages a network of hospitals, medical centres and fertility clinics across 19 countries. It listed in London in 2012.