NMC Health has found evidence of suspected fraud in its finances following damaging revelations over billions of dollars of undisclosed debt on its balance sheet and doubts over its cash position.
The Middle East-focused healthcare group this week admitted net debt was twice what it had disclosed, after it found almost $3bn of borrowings hidden from its board that had been used for unknown purposes. Shares were suspended at the end of last month.
Founded by Indian entrepreneur BR Shetty, NMC Health was for several years a favourite among investors and the group was propelled into the FTSE 100 index in 2017. However, it has been under siege since December when prominent US short seller Muddy Waters raised questions over its debt, asset values and cash position.
NMC began looking into its own finances after the allegations, with former FBI director Louis Freeh hired to lead an internal investigation. But it is still struggling to find answers in a mounting accounting scandal.
NMC on Thursday said its advisers had “discovered evidence leading to suspected fraudulent behaviour in relation to some elements of NMC’s previous financial activities”.
It added that NMC was “fully committed to investigating these activities and has notified the relevant authorities in the UK and UAE to determine what action they also consider to be appropriate”.
The Serious Fraud Office in the UK did not respond to a request for comment. The UK’s City watchdog is already investigating the group.
Although NMC, which operates hospitals and pharmacies across the United Arab Emirates, initially rejected the allegations from Muddy Waters as “false and misleading”, it has since admitted that the board had little idea of how much debt had been raised by the company or what it was for. It has also disclosed a secret supply chain financing arrangement apparently used by its founder and further discrepancies over its cash position.
NMC fired its chief executive and its chief financial officer has gone on extended sick leave as part of a boardroom clear out. Moelis, PwC and Allen & Overy are overseeing debt restructuring talks with lenders.
Banks, increasingly concerned about their loans to NMC, have started to work together as they try to identify their true exposure ahead of the restructuring. Its international lenders include HSBC, JPMorgan and Standard Chartered.
The healthcare provider’s ability to survive this crisis has also been called into question as some banks limit access to working capital facilities, people briefed on the matter said. The late payment of February salaries renewed focus on the company’s financial health, which has been compounded by the revelations over undisclosed debt and suspected fraud.
“There is a desperate need for liquidity,” said one adviser.
Thursday’s revelations of suspected fraud were combined with a disclosure from Finablr, an exchange and payments platform that includes Travelex and is majority owned by Mr Shetty, that it was investigating its finances amid a liquidity squeeze.
London-listed Finablr’s shares plunged on Thursday after it disclosed that its cash flow had been impacted by travel restrictions relating to coronavirus and “adverse perceptions” that NMC’s problems have exacerbated stress on Finbablr’s cash flow.
Finablr, which is to appoint a financial adviser, said NMC’s operations and finances are independent.
Investors have long feared that issues facing NMC could transfer over to Finablr, given cross shareholdings.
NMC’s former chief executive, who stepped down last month after the internal review found financing irregularities, is the brother of Finablr’s chief executive.