(Reuters) – U.S. short-selling firm Muddy Waters said on Tuesday it has acquired a short position in NMC Health Plc (L:), citing “serious doubts” about the hospital operator’s financial statements and sending its shares down more than 20%.
Short seller Carson Block’s firm questioned the value of NMC’s assets, cash balance as well as its reported profits and debts.
In a research note, Muddy Waters cited inflated asset purchase prices and capital expenditures by NMC, calling them “hallmarks of significant fraud” and said some investments showed “numerous red flags”.
United Arab Emirates-based NMC Health was not immediately available for comment.
Shares in the healthcare provider plunged to the bottom of London’s bluechip index () and were on track for their worst day ever.
“NMC’s reported cash balances show two red flags that indicate they could be materially overstated,” the short seller said, adding NMC’s margins appear “too good to be true” relative to UAE-focused publicly traded companies Mediclinic International Plc (L:) and Aster DM Healthcare Ltd (NS:).
“We believe that NMC has manipulated its balance sheet to understate debt,” Muddy Waters said.
NMC Health, 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.
About 10% of the company’s outstanding shares were in short position as of Dec. 13, according to FIS data.
Muddy Waters has a reputation for conducting research on companies and taking short positions in them.
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