NMC Hospital in Al Qusais - the operator had been recording strong financials in recent years, with 2018 being its best. Image Credit: Gulf News Archive

Dubai: NMC Health continues to keep its shareholders on edge with doubts now forming over promoters’ actual controlling stakes. And then came the revelation about potential bids for the UAE’s most profitable hospital operator, with one offer reportedly in the range of 2 billion pounds.

“Just when you thought it couldn’t get any stranger, there are two new twists in the tale for the troubled hospital operator,” said Russ Mould, investment director at stockbroker AJ Bell.

“Firstly, the FTSE 100 member believes two directors’ shareholdings have been incorrectly reported, implying it had poor information controls. Secondly, it has confirmed takeover interest from KKR and GK Investment following recent share price weakness.”

Monday’s revelations however brought some cheer for the stock at last, which ended 32 per cent higher at 9.3 pounds, which analysts cited as being driven by news of the takeover.

Some cheer, some question

Putting to end weeks of speculation surrounding buyout offers, NMC announced it had received “highly preliminary” approaches from US private equity giant Kohlberg Kravis Roberts & Co LP (KKR) and Middle East and Africa-focused firm GK Investment Holding Group SA.

The latest disclosures came at a time when NMC shares were “shorted” by Muddy Waters in December, which alleged that the company manipulated its balance-sheet and inflated the prices of assets it purchased. “It was a clever move to announce this even though at a very early stage,” a trader said, adding this would give the shares some respite.

Analysts at Align Research, who has an exposure in NMC, said it was not surprising the UAE-based firm - which was worth about 8.5 billion pounds at the share price peak in 2018 - has drawn takeover interest now that it’s capitalized at just 1.6 billion pounds.

“Given the decimation in value running to a couple of billion pounds in recent weeks, it is thus not surprising that reports had surfaced of bid/investment interest in the stock,” the analysts said.

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Just the ‘tip’

“What we found is likely just the tip of the iceberg,” Carson Block, founder of Muddy Waters, wrote in an emailed response to the latest developments. “As for the notion that NMC might receive private equity bids, it’s hard for us to believe they would survive due diligence.”

Other analysts too voiced that potential bidders will 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 Muddy Waters’ allegations by former Federal Bureau of Investigations director Louis Freeh aren’t yet known.)

Analysts at PMH Capital wrote in response to the potential bid that it won’t be betting either on a deal being completed, or a high takeover premium.

Opportune time

“If the Muddy Waters allegations are without substance, then the shares present a serious bargain opportunity,” the analysts at Align said, while adding that the stock is presently the most oversold on record and it expects a price between 14-17 pounds a share price in a buy-out.

The company’s share price has so far dropped 70 per cent from the day prior to the Muddy Waters report being published.

Confusion about exact shareholding

The NMC founder Dr. B. R. Shetty’s stake in the operator also came under fire. Also called into question were those held by the two other controlling shareholders, both UAE nationals.

Shetty was previously thought to be NMC’s largest shareholder, with 19 per cent. It now seems that the two other investors might own some of the stock previously thought to be held by Shetty. A legal review is underway to verify Shetty’s stakes.

Although the NMC board said it is “urgently seeking clarity from each of these shareholders” to the number of shares they own or have used as collateral, it said the review would also affect the interests of the two Emirati shareholders.

Linked shareholding
BRS International Holding, which is 100 per cent owned by Dr. B.R. Shetty, has been holding 20 million shares for Saeed Bin Butti and Khalifa Bin Butti, as per a 2017 memorandum of understanding. Some of those shares were later transferred to other banks.
If the ongoing legal review shows the shares belong to Shetty’s fellow shareholders, and not Shetty, then his and his family’s holdings would be reduced by 9.58 per cent.
“It’s clear that this does not affect underlying value of the stock, but explains some of recent weakness if some of these shares have been sold,” wrote analysts at Align Research.
Muddy Waters has questioned whether NMC’s latest announcement is connected to undisclosed debt at the company, or whether the debt in Shetty companies have subsidized the company’s margin. It also called for British regulators, the Serious Fraud Office and the Financial Conduct Authority, to investigate.