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On 10 February 2020, FTSE 100 company NMC Health plc, the largest healthcare chain in the UAE, was approached with what it described as a ‘highly preliminary approach’ by two private equity groups, GK Investment Holding Group (GKI Holding SA) and Kohlberg Kravis Roberts & Co. (KKR & Co.) The possible offers follow a turbulent period for the company, which has seen accusations of financial and accounting misconduct by hedge fund Muddy Waters, a share price fall of 67% in the last three months (from 2585p to 864.80p at the time of writing) and a legal review of the shareholdings of its senior directors.
Trouble started for the company when hedge fund Muddy Waters published a report on 17 December 2019, accusing the company of misstating the value of its assets, its cashflow and the levels of its debt. Although NMC rejected these findings, they instructed former FBI director Louis Freeh to undertake an independent review into the allegation made by the hedge fund. Following the release of Muddy Waters’ report, NMC’s share price fell dramatically by almost 50% in four days from 2585p (16 December 2019) to 1,300.50p (20 December 2019).
With the company’s financial reporting under scrutiny, further governance question marks arose when NMC also announced that its Joint Non-Executive Chairman, Dr Bavaguthu Raghuram Shetty (Dr B.R. Shetty) and his advisers were conducting a legal review to ‘verify the total interest of Dr.B.R Shetty, his associated family members and his associated family holding companies in the Ordinary shares of (NMC)’. NMC believes that the shareholdings of Dr Shetty and his business partners Mr Saeed Al Qebaisi and Mr Khaleefa Al Muhairi have been reported incorrectly to NMC and the market. It is thought that Mr Shetty and his partners ‘pledged’ their shares to banks to raise finance. It now appears they as well as NMC are unsure of how many ordinary NMC shares they still individually own.
The FCA is also investigating the alleged misreporting of interests held in NMC Health. Following NMC’s announcements, Finablr plc, a FTSE 250 financial services company also founded by Dr Shetty, announced that it was reviewing its own shareholding structure.
NMC’s corporate governance structure may need bandaging, but the group is seen as valuable (and due to recent movements in its share price, affordable) to private equity bidders. Although KKR & Co. issued a ‘no intention to bid statement’ on 11 February, GKI Holding SA confirmed that it is considering making an offer for NMC on the same day. The company now has until 9 March 2020 to make a firm offer for the embattled healthcare company.
Market Tracker will continue to monitor this transaction as it develops.
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