UK regulator finds NMC Health committed market abuse over $4bn debt misstatement

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The UK Financial Conduct Authority has found that the collapsed Middle Eastern hospital operator NMC Health Plc committed market abuse by understating its debt by as much as $4bn.

The FCA publicly censured the former FTSE 100 company for publishing “materially inaccurate information about its debt position” between March 2019 and February 2020. The watchdog said on Friday it was not imposing a financial penalty on NMC Health — which fell into administration in April 2020 — because no funds were anticipated to remain after creditors had been paid.

The outcome brings an end to a three-year investigation by the FCA after NMC fired its chief executive and revealed financial discrepancies in February 2020. The disclosures came after it was targeted by short seller Muddy Waters Capital, which published a report in December 2019 raising questions over the accuracy of the company’s financial reporting.

“The concealment of NMC’s debt position and subsequent collapse has left creditors including investors out of pocket,” Steve Smart, the FCA’s joint executive director of enforcement and market oversight, said in a statement.

“While the administrator has sought to recover any value and distribute to creditors, the FCA has sought, through the public censure, to explain how and why investors were misled to ensure that lessons are learnt,” he added.

The watchdog said it had liaised with law enforcement agencies abroad in the investigation.

NMC’s operating company came out of administration in March 2022. The UK entity NMC Health, which at its peak in August 2018 had a market value of £8.6bn, remains in administration.

Irregularities found by the FCA included the creation by NMC’s treasury department of “two parallel sets” of financial records, described as “showing” and “non-showing”. The “non-showing” spreadsheets recorded debts of about $4.1bn that were not included in NMC’s publicly disclosed debt figure of $2.1bn. 

The FCA said there was knowledge that statements about debt levels were false or misleading “at a sufficiently senior level” in the organisation. But it did not say who within the company knew this.

The FCA closed an investigation into the former boss of NMC, Prasanth Manghat, people familiar with the probe told the Financial Times in July. A previously unreported FCA investigation into NMC’s founder BR Shetty had also been “discontinued”, his lawyer confirmed.

NMC’s auditor EY is under investigation by the UK accounting regulator and is also defending a multibillion-dollar claim brought by the company’s administrators in London’s High Court. 

Richard Fleming, of Alvarez & Marsal, the joint administrator of NMC Health, said: “We have co-operated with the FCA extensively in its investigation into NMC Health Plc and note the censure announcement as we continue to pursue legal claims on behalf of creditors.”

The FCA also flagged NMC’s use of “unreported supply chain finance facilities” to mask its debt levels. The regulator noted that some of the suppliers using these facilities were related parties and that the facilities benefited from a corporate guarantee from NMC Health, meaning that they “should have been included in the figures reported to the market but were not”.

A chunk of NMC’s supply-chain finance facilities were provided by Greensill Capital, a lending start-up that employed David Cameron — the UK’s former prime minister who was appointed foreign secretary this week — as an adviser. Greensill itself fell into administration in 2021. It later emerged that the collapse of NMC prompted one of Greensill’s insurers to pull its coverage in 2020.