After seeing its market value soar to more than $10 billion less than two years ago, NMC Health Plc is now struggling to cling on to investors. The Middle Eastern hospital operator, founded by billionaire Bavaguthu Raghuram Shetty, is in the spotlight after Carson Block’s Muddy Waters Capital claimed it’s understating debt and overstating cash. Shares in the firm and one of its sister companies have slumped.

The accusations in a Dec. 17 report, which NMC denies, have sent the London-listed firm’s market value plummeting 48% to 2.8 billion pounds ($3.7 billion) and have helped wipe $1.5 billion off the Shetty family’s fortune.

Trading in the London-listed company has surged to an average of almost 2.5 million shares a day, from around 560,000 in the preceding three months. Its share price has fallen 24% this year to 13.48 pounds.

What are the allegations against NMC?

Insufficient disclosure of related-party transactions, manipulation of the balance sheet and inflated asset purchases are some of Muddy Waters’s most serious allegations. NMC’s $107 million redevelopment of NMC Royal Women’s Hospital in Abu Dhabi “contains numerous red flags,” the short seller said. NMC also appears to have paid too much for a stake in Premier Care Home Medical and Health Care LLC, based in the same city, the report alleged.

NMC’s margins are “too good to be true” relative to peers, said Muddy Waters, which is shorting the company’s stock. “We are unsure how deep the rot at NMC goes, but we do not believe that its insiders or financials can be trusted.”

How has NMC responded?

NMC said the report was “false and misleading.” The company approached the U.K.’s Financial Conduct Authority with evidence it says shows that a number of hedge funds acted together to bring down the share price. It announced share buyback of as much as $200 million and hired former FBI Director Louis Freeh to look into Block’s claims.

What else is rattling investors?

Emirates NBD PJSC sold 1.04% of NMC last week at a price of 14.04 pounds. The proceeds will be used to repay a loan taken on by Infinite Investment LLC. Earlier this month, two major shareholders offloaded nearly $500 million worth of stock at below the market price. NMC’s Executive Vice Chairman Khalifa Bin Butti had pledged the shares as collateral against loans, according to a December 2017 filing. Proceeds from the sale will be used to pay down debt.

The Muddy Water’s allegations follow the 2018 collapse of Dubai-based buyout firm Abraaj Group, which investors accused of extensive corporate governance failures. NMC is the only FTSE 100 company from the Middle East -- and now the smallest member by market value. The claims against NMC may be a further blow for the region, which has been trying to diversify from oil and attract investors.

What’s happening with Shetty’s other investments?

Indian-born Shetty has set up a business empire spanning healthcare and financial services. His holdings have taken a hit since the Muddy Waters report. He created Finablr in 2018 to consolidate his payments and money-trading brands such as Travelex Holdings Ltd. and the UAE Exchange Centre LLC. The holding company, which was listed in London in May, has seen its shares crash 44% in 2020, while a cyberattack has rocked Travelex.

Is there any upside?

NMC has re-affirmed its 2019 and 2020 forecasts and many analysts covering it still have a buy rating. Investors like The Capital Group Companies and Krupa Global Investments have boosted their stakes in the company.

• Finablr plunges after share pledge

• Ex-FBI head hired to probe Muddy Watters allegations

• See video on NMC share plunge

To contact the reporter on this story: Archana Narayanan in Dubai at anarayanan16@bloomberg.net

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Paul Wallace

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