U.S. short-selling firm Muddy Waters said on Tuesday it had acquired a short position in NMC Health Plc, criticising the healthcare group’s financial statements and wiping more than a third off the value of the company’s share price.
The short seller questioned the value of the London-listed firm’s assets and cash balance, as well as its reported profits and debts. Muddy Waters said in a research note that NMC’s asset purchase prices and capital expenditures were inflated.
NMC, which is based in the United Arab Emirates, declined to comment. Britain’s financial watchdog also declined to comment.
Shares in the healthcare provider, founded and co-chaired by Bavaguthu Raghuram Shetty, plunged more than 35% to 1,674.5 pence, sliding to the bottom of London’s bluechip index. The stock was on track for its worst day ever.
NMC, with operations in 17 countries, reported net debt and payables of $1.89 billion at the end of 2018. NMC said in October it expected double-digit revenue and core earnings growth in 2020.
Muddy Waters, known in financial markets for declaring short equity positions on the basis of its in-house research, said NMC’s reported cash balances could be “materially overstated” and said its margins were “too good to be true” relative to UAE-focused publicly traded companies Mediclinic and Aster DM Healthcare.
Shetty also founded Finablr, a London-listed payments and foreign exchange company, whose shares lost almost 20% on Tuesday. As well as founding Finablr, Shetty is co-chairman of the company, according to its website.
Finablr could not immediately be reached for comment.
Shetty did not respond to Reuters calls or requests sent to him via his LinkedIn page for comment on the NMC and Finablr share moves.
About 10% of NMC’s outstanding shares were in short position as of Dec. 13, according to FIS data. It was not immediately clear how much of that short position was accounted for by Muddy Waters, a company founded by American Carson Block.
Short sellers borrow shares and immediately sell them, betting the price will fall. They then buy the shares back and return them to the lender, aiming to pocket the capital gain.
Advocates say the practice puts a check on investor over-confidence and corporate spin. Critics say it destabilises markets because shortsellers have an interest in driving a company’s share price down.
Muddy Waters, which came to fame by betting against some Chinese companies, took its first short position in a London-listed company in August, when it bet against litigation funder Burford Capital.
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