NMC Health cut from FTSE 100 index after Muddy Waters criticism

NMC Health Plc is getting booted from the UK’s benchmark FTSE 100 Index in another setback for the troubled hospital operator, which has been in freefall since short seller Muddy Waters Capital LLC accused it of financial improprieties in December.

NMC will be relegated to the mid-cap FTSE 250 Index when trading resumes, according to a statement from London Stock Exchange Group Plc, which owns equity index provider FTSE Russell.

NMC shares slumped 64 per cent in a little more than two months after Muddy Waters’ report, and then were suspended from trading last week. The two other companies to be relegated are travel company TUI AG and home-improvement retailer Kingfisher Plc.

Fresnillo Plc, Intermediate Capital Group Plc and Pennon Group Plc will be promoted to the FTSE 100 Index from the FTSE 250 Index, according to the results published on Wednesday. The index changes will take effect from March 23.

NMC, based in Abu Dhabi, had a market value of 1.96bn pounds ($2.5bn) based on its last closing price, down from a peak of 8.58bn pounds in August 2018.

Before the Muddy Waters report, NMC shares had jumped more than 1,000 per cent since its initial public offering in 2012 and the company joined the FTSE 100 in September 2017.

The stock was suspended before the markets opened on February 27 and the UK’s Financial Conduct Authority has started a formal enforcement investigation into the company. NMC’s share suspension poses a dilemma for funds whose holdings are tied to following the benchmark index.

“If it’s a FTSE 100 tracker they’ll be getting rid of them at a fairly steep loss, but luckily it will just be a fraction of their portfolio,” Helal Miah, an analyst at The Share Centre, said by phone ahead of the decision. “It is possible that for the time being they’ll be stuck with the share that’s not trading.”

A spokesperson for NMC declined to comment.

NMC Health initially labeled as “unfounded, baseless and misleading” the allegations by Muddy Waters that the company had overpaid for assets, inflated cash balances, understated its debt and had corporate governance shortcomings.

NMC Health subsequently said it wasn’t sure how many shares its principal stockholders held because they had been used as collateral for loans. It later fired the chief executive officer after finding financial discrepancies, and said the top shareholders had borrowed money via the company’s supply-chain financing arrangements, loans that were guaranteed by NMC Health.

The company this week asked its lenders not to call in their loans while the company seeks an injection of capital.

FTSE-eligible shares are ranked by market value. Any stock that falls to 111th position or below is automatically deleted from the FTSE 100, while any that rise to 90th position or above join the index, according to FTSE Russell’s guidelines.