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Muddy Waters's FTSE 100 Target Has a Credibility Problem

Chris Bryant

(Bloomberg Opinion) -- When short-sellers such as Muddy Waters Capital LLC accuse listed companies of balance sheet manipulation, the target typically responds with their own lengthy rebuttal. Other investors caught in the middle often don’t know what to think and so a lot depends on the board’s credibility and transparency.

NMC Health Plc, the subject of Muddy Waters’s latest attack, is now a little short of both.

On Monday, the United Arab Emirates’ hospital operator and member of the FTSE 100, admitted that it doesn’t know how much of the company its major shareholders actually own. (This is separate to the Muddy Waters allegations, which focused on  the asset values, debt and cash balances that NMC reports, as well as governance issues).

Founder and chairman Bavaguthu Raghuram Shetty is conducting a legal review to verify the size of his stake and that of two other Emirati controlling shareholders. These may have been “incorrectly reported historically to the company and the market,” NMC said in a statement.

The details are complicated, but the upshot is that Shetty and vice chairman Khaleefa Butti Omair Yousif Ahmed Al Muhairi must absent themselves from board discussions until their holdings and any “security arrangements” are clarified, and until the board decides whether they should remain directors.  

The concern is that some of the shares may have been pledged as collateral and could be sold by financial institutions without prior approval from the shareholder, whoever that turns out to be.

Such worries may have merit. The stock has plunged 70% since Muddy Waters published its report in December. Share sales by major holders who’ve needed to settle margin calls on loans might have contributed to the rout.

Needless to say this is pretty embarrassing for NMC who accused Muddy Waters in December of issuing “false and misleading” research. Now, in one respect, the company has had to admit that its own disclosures to the market were false and misleading, albeit for reasons beyond its direct control.

The best hope now for long-suffering minority shareholders is that someone comes along and makes an offer for the healthcare operator. In a separate and rather fortuitously timed statement, NMC confirmed on Monday that it had received “highly preliminary” approaches from Kohlberg Kravis Roberts & Co LP and GK Investment Holding Group SA.

NMC was worth about 8.5 billion pounds ($11 billion) at the share price peak in 2018 so it’s not surprising the company has drawn takeover interest now that it’s capitalized at just 1.6 billion pounds. NMC’s valuation — less than 7 times estimated earnings — is pretty undemanding for a healthcare stock; even one that’s subject to those Muddy Waters claims of balance sheet manipulation, which it denies. The shares rose 7% on Monday, a surprisingly decent outcome given the embarrassing share ownership revelations.

However, potential bidders will still have concerns about how to conduct due diligence on a company that’s accused of being less than candid. The findings of an independent review of those Muddy Waters allegations by former Federal Bureau of Investigations director Louis Freeh aren’t yet known.

The boilerplate caveat accompanying NMC’s regulatory announcement that “there can no certainty that any offer will be made for the company”, or at what price, seems more pertinent than usual.

To contact the author of this story: Chris Bryant at

To contact the editor responsible for this story: James Boxell at

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

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