23rd Dec 2019 09:04
(Alliance News) - Muddy Waters Capital LLC on Monday said NMC Health PLC's response to its claims was misleading, calling on the FTSE 100-listed company to disclose the amount of the Aspen lease liability and a reconciliation of its debt .
Muddy Waters, which was founded by short-seller Carson Block, on Tuesday last week said: "We have serious doubts about the company's financial statements, including its asset values, cash balance, reported profit, and reported debt levels."
Short selling is a trading strategy that speculates on the decline in a stock.
Muddy Waters also attacked NMC over its accountancy practises claiming NMC deliberately understated its debt by USD320 million in 2018 by not reporting leases associated with buying Aspen Healthcare as finance leases.
"We have reassessed and reconfirmed the lease accounting done by Aspen as of acquisition date, and we were comfortable with the accounting of lease done by Aspen which was consistent as per IFRS and concluded it as operating lease. On acquisition of a business, the acquirer ordinarily assumes all assets and liabilities of the target...It is clear that since the lease was recorded as an operating lease in the books of the target, NMC too would record this as an operating lease and not finance lease," NMC said in response on Thursday.
On Monday, Muddy Waters said it expects to comment more comprehensively on NMC "going forward", however, due to the limited attention span afforded by the holidays, it will limit its initial comments.
Muddy Waters said its concerns that NMC's balance sheet understates its debt grew after the Financial Times on Thursday reported that NMC held talks to borrow USD200 million of off-balance sheet debt.
Citing draft document deals dated during the spring and summer, the FT reported that NMC planned to raise the loan through a Dubai entity, to fund the construction of hospitals as it seeks to continue its aggressive expansion in the Middle East.
As a result, Muddy Waters called upon NMC to release a reconciliation of its debt to its reported numbers for 2018 and the first half of 2019.
Earlier on Monday, NMC Health said it is "disappointed" with the share price reaction following this "attack".
The stock was trading 21% higher in London early Monday at 1,558.00p a share but still is down by almost half over the past week.
The healthcare chain said it will be commencing an independent, third-party investigation into claims made by short seller Muddy Waters.
The independent review will be overseen by a committee made up of a majority of independent non-executive directors.
"We are confident that this review, when complete, will be entirely confirmatory of the disclosures provided by the company to date. We will also be progressing relevant legal and regulatory options following the actions taken by third parties to mislead the market and manipulate the share price," said NMC.
It added that it believes its current share price is "not a fair reflection of the value of the company" which has a "consistent track record of strong growth and cash generation".
By Evelina Grecenko; [email protected]
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