Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
At last, the FCA has published its Final Notice on the collapse of NMC Health, more than three years after the FTSE 100 hospital operator fell into a big sinkhole of undisclosed debt.
If nothing else, the notice gives a fair summary of events:
On 17 December 2019, Muddy Waters Capital LLC (“Muddy Waters”) published a report which set out a number of detailed allegations impugning the accuracy of NMC’s financial reporting to the market (“the Allegations”).
In announcements made on 18 and 19 December 2019, NMC denied the veracity of the Allegations but announced that it would be commencing an independent third-party review to investigate them (“the Review”).
On 26 February 2020, NMC announced that the Review had identified potential discrepancies and inconsistencies in the Company’s bank statements and ledger entries. The following day, the Authority agreed to NMC’s request for a temporary suspension of its shares to ensure the smooth operation of the market.
On 10 March 2020, the Company announced that the Review had identified over USD 2.7 billion in debt facilities that had previously not been disclosed to or approved by the Board. On 24 March 2020, NMC announced that it currently estimated its debt position to be around USD 6.6 billion. The appointment of administrators and cancellation of listing.
On 6 April 2020, NMC announced that one of its principal creditors had filed an application with the High Court of Justice for the appointment of administrators. That application was successful and Joint Administrators (“the Administrators”) were appointed on 9 April 2020.
NMC was running two sets of accounts and guaranteeing supply-chain credit to related parties that it was failing to disclose, the FCA says. The report also finds that pretty much all its published statements in 2018 amounted to market abuse.
And while some on the board might have been clueless, the regulator says there “was knowledge within NMC at a sufficiently senior level that the Disseminated Information was false or misleading”.
The punishment will be a wee telling-off that’s directed at no one in particular.
Given that NMC was placed into administration in April 2020, it being presently anticipated that no funds will be available after creditor claims have been met, the Authority is satisfied that it is preferable for NMC to meet these claims, rather 4 than to impose a financial penalty which would reduce the funds available to creditors.
The Authority therefore proposes to publish the censure set out in this notice pursuant to section 123(3) of the Act.
The FT reported in July that the FCA had shelved investigations into NMC’s former chief executive Prasanth Manghat and company founder BR Shetty. Neither name appears in the FCA’s 21-page report. Nor does EY, whose UK business denies it was negligent in its audits of NMC.
An assortment of legal actions are continuing around NMC’s collapse. Administrators Alvarez & Marsal have alleged that, as early as 2012, revenue was being inflated, borrowings hidden and transactions misreported to enrich senior management. Manghat has rejected the accusations and a lawyer for Shetty has said he will “defend vigorously” the claims made against him. Shetty has launched a separate action against Manghat and EY, claiming he was defrauded through a “debt-fuelled Ponzi scheme”.
That’s the UK watchdog’s job completed though, with investor confidence in the integrity of financial markets restored. So that’s nice.
Further reading
— NMC Health: presented without comment (FTAV)
