December 17, 2019 / 11:20 AM / a month ago

UAE's NMC Health tanks as Muddy Waters takes short position

(Reuters) - U.S. short-selling firm Muddy Waters said on Tuesday it had acquired a short position in NMC Health Plc (NMC.L), criticizing the healthcare group’s financial statements and wiping almost 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, was not immediately available for comment. Britain’s financial watchdog declined to comment.

Shares in the healthcare provider plunged more than 28%, sliding to the bottom of London's bluechip index .FTSE and were on track for their worst day ever.

NMC, which has operations across 17 countries, reported net debt and payables of $1.89 billion at the end of 2018, according to its annual report. 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 International Plc (MDCM.L) and Aster DM Healthcare Ltd (ATRD.NS).

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 destabilizes 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 (BURF.L).

Reporting by Noor Zainab Hussain and additional reporting by Pushkala Aripaka in Bengaluru and Kirstin Ridley in London; Editing by Saumyadeb Chakrabarty and Edmund Blair

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