First Enron of 2020: Muddy Waters’ Short-Target NMC Health Just “Discovered” $2.7 Billion Undisclosed Debt

Oops, the rot runs even deeper than Muddy Waters could have imagined.

By Nick Corbishley, for WOLF STREET:

This wildly turbulent year just produced its first Enron-like scandal. At the rotten heart of it is NMC Health, a FTSE 100 company that has health-care operations in 19 countries and is based in the United Arab Emirates. Last Thursday, the company’s shares were suspended after an internal review uncovered a morass of dodgy accounting and fiduciary shenanigans. Now it was revealed that those shenanigans had helped to conceal at least $2.7 billion of undisclosed debt.

The discovery more than doubles the size of NMC’s debt mountain to around $5 billion, up from around $2.1 billion last June. The proceeds from much of that debt were used for “unauthorized purposes,” the company now admits, although it’s not yet clear what those purposes were. NMC also apparently has no cash on hand to service that debt and is currently receiving support from Daman Insurance, a health insurance company that is 80%-owned by Abu Dhabi’s government and the rest by Munich Re, to pay overdue bills to suppliers.

For some time, NMC’s cash flow was supplemented by reverse factoring deals. Reverse factoring is a form of financial engineering, an arrangement with a lender that turns the company’s trade accounts payable into debt that is owed to a financial institution. But since that debt does not have to be disclosed as debt, the company appears to have less debt than it actually has. Once these shenanigans are discovered, as just happened to NMC as well as to UK outsourcing giant Carillion and Spanish green energy behemoth Abengoa before it, the cash can quickly run dry.

NMC is reportedly two weeks behind in paying February salaries to its staff. Now, banks are wary about lending the company fresh funds. Earlier this month, it even asked lenders for a temporary standstill on its existing facilities.

There had been hopes that NMC might be bought out before things got this serious but those hopes were dashed damning findings of the internal review published last month. One of the two companies that were reportedly mulling a takeover bid, GKSD, has pulled out, while the other, KKR, denies even discussing the matter.

It’s a dramatic reversal for a company that appeared not so long ago to be in reasonable health. Then, on December 17, short seller Muddy Waters hit the company with accusations that NMC had been misleading investors and failing to disclose vital information regarding:

  • Its lack of internal controls;
  • Its true ownership
  • Its true debt burden;
  • Its true cash-on-hand and asset values;
  • Its rampant use of reverse factoring.

“We have serious doubts about the company’s financial statements, including its asset values, cash balance, reported profits, and reported debt levels,” read the first line of Muddy Waters’ report. NMC was engaging in a raft of accounting irregularities, it said, including overpaying investments, materially overstating cash balances, and reporting profit margins that “seem too good to be true.” The report concluded with this line:

“We are unsure how deep the rot at NMC goes, but we do not believe that its insiders or financials can be trusted.”

As it turns out, the rot runs even deeper than Muddy Waters could have imagined. The latest revelation that NMC “has at least $2.7 billion in undisclosed debt and no cash” prove that “it is no longer just a fraud. It is a massive fraud,” Muddy Waters’ founder Carson Block said in a statement.

Clearly, NMC’s board did not do a very good job of supervising NMC. In the last few weeks five of its 11 members have either resigned or been fired from the company, including its Indian-born billionaire owner Bavaguthu Raghuram Shetty after being accused of misreporting the size of his stake in the company.

Under Shetty’s stewardship, NMC appears to have taken a leaf out of Enron’s playbook by taking on increasing amounts of debt to pump up the value of its stock, which it then used as collateral for even more debt. This “circular symbiosis” was “reminiscent of Enron’s off-balance sheet debt structures in which Enron issued shares to ‘special purpose entities’, which borrowed money using the stock as collateral, and then bought (poor) assets from Enron,” Muddy Waters said in a February 10 statement. “As with Enron, this circular arrangement would work until the stock value falls, which is what ultimately triggered Enron’s collapse.”

Before being suspended from the FTSE 100 last month, NMC shares had collapsed by 76% since August 2018. Shares in Finablr, a financial services firm owned by NMC’s founder, Shetty, continue to trade. On Wednesday, they plunged 25% to 22 pence, almost 90% lower than what they were worth just three months ago, before Muddy Waters published its report.

The company’s bonds are also still being traded. And they are also deep underwater and getting deeper by the day. A $400 million sukuk (a Sharia-compliant financial certificate that essentially functions like a bond) due November 2023 crashed after Tuesday’s announcement, plunging by about 60%, from about 63 cents on the dollar to less than 25 cents on the dollar. Clearly, the market expects these bonds to default, with not much left for bondholders. By Nick Corbishley, for WOLF STREET.

“Even more damning than our initial report”: Carson Block of Muddy Waters. Read... Muddy Waters’ Short-Target NMC Health, a FTSE 100 Company, Admits Doctoring Accounts on Massive Scale. Shares Suspended

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  48 comments for “First Enron of 2020: Muddy Waters’ Short-Target NMC Health Just “Discovered” $2.7 Billion Undisclosed Debt

  1. Willy2 says:

    – The irony: A Healthcare company that is in “bad (financial health”.
    – “Unauthorized purposes” ?? You mean like paying bribes, the board of the company lining their own pockets ?

    • Reality says:

      Who knew that all it would take to kill a zombie would be a cold?

    • nick kelly says:

      Tangential to topic but related: Bitcoin crashes 50 % to 4500 or so.
      Do you guys get it YET?
      It’s a modern chain letter, improved with limited edition and deliverable via computer.
      A currency? Are you f5cking kidding?

      ‘Currency’ : root word ‘current’, as in routinely or currently exchangeable for good or services with another party who is NOT bullish or a believer.

      When you go to buy a car in US$, does the guy have to be long US$?
      Sure you can be a bull or bear Vs US$, IF you are a currency trader moving a hundred million trying to make a few thou against the euro or yen or Mex Peso. But the guy with the car does not have to be a US$ bull to accept your $US dollar offer. Why? Because it’s a f%cking currency. He can take the proceeds and exchange it for groceries or drugs or…because it’s a CURRENCY.
      If you guys who are anti-fiat want to do something useful and less idiotic start a copper- based currency where you send the rights to copper (or anything) over the net, so when it hits the fan the guy has some copper instead of a worthless ( although limited edition!) chain letter.

    • Johni Deep says:

      When I read “unauthorized purposes”, I figured the top two results on the Family Feud poll would be …. #1 Sex Workers, and #2 Cocaine. I didn’t think of anything as mundane as Bribes, although it would be highly likely that the Bribes would like come in the form of buying Sex Workers and Cocaine for others with influence.

    • Helmut Beintner says:

      Parasites and scum working very hard.

  2. Michael Engel says:

    SPX in a battle on the support line @ 2,532.69 from Feb 2018(L).

  3. Erle says:

    I’ll bet that nobody goes to prison.

    • MC01 says:

      The arrest warrants are coming, trust me on this.
      But NMC Health owners are from Abu Dhabi and India: if they are already in their home countries and have remotely decent relationships with local governments the extradiction hearings will take years, and then they will bog down because somebody “forgot” a signature.

      India is a whole lot like France and Brazil: despite having extradiction treaties with most of the world they extradict their own citizens only very rarely and usually only as the result of heavy political pressure.
      And Abu Dhabi… it’s a den of vice that makes Dubai look clean by comparison. Unless the NMC Health owners have a fallout with the Al Nahyan family (the Abu Dhabi rulers) nobody will lay a fingeron them, albeit they may be “put under house arrest”, which means exactly zero there.

      • IdahoPotato says:

        Spot on about India. Everyone has a pet politician they feed, water and keep on the payroll. Just like in the U.S.

      • Fed up says:

        The Abu Dhabi powers that be are linked to this. Not the first time: 1MDB, Arabtec, Drake & Scull, Aabar, IPIC, NMC etc all get connected to same circle in the end.

    • Or prison comes to them? Self quarantine:)

      • Thomas Roberts says:

        Home arrest, if they get caught “if they are prosecuted, a very big if”, and, especially, if they get infected, is possible; but, just like some others, they’ll break quarantine at their whim.

        More likely, fines, that amount to far less than what they stole.

    • Helmut Beintner says:

      Nobody? It takes people in high places to steal that kind of money. Hey, there is always the building custodian. WE (the Parasites) blame him and he does time. So whats the problem

  4. 2banana says:

    Enron also means company executives in jail, a bankrupt company liquidation and the responsible audit company bankrupt and broken apart.

    • Javert Chip says:

      Here’s a Depends full of good news:

      EY has been NMC’s auditors since going public in London in 2012.

      As Jed Clampet would say: WOOOO Doggies!!

  5. Michael Engel says:

    1) The DOW < a 30 Y backbone, it was breached this week :
    2)Take July 1990(H) @ 3,024.26 to Jan 1994(H) @ 3,985.96 // and
    a parallel line from Oct 1990 @ 2,344.31.
    3) The DOW had a spring, an inverse upthrust, under the support
    line from Dec 2018(L) @ 21,712.53.
    4) As long as the spring is small its a good thing.

    • VeryAmused says:

      The cognitive dissonance your posts cause me is awesome.

      I am not sure if you are one of the most amazing trolls ever or…something else.

      Either way, keep being you please.

    • Javert Chip says:

      Michael Engel

      1) With all due respect, I’ve tried to read your posts for months; this old CFO can’t begin to understand them.

      2) Your statement “…The DOW had a spring, an inverse upthrust, under the support line from Dec 2018(L) @ 21,712.53…” is chartist techie geek-speak that has exactly probative value except to other chartists geeks.

      3) I’m guessing WOLF STREET is not a coven for chartist techies

      4) I suspect NMC Health financials may be more meaningful.

      If you’re sharing something of real value, please translate it into non-techie-speak. Frankly, I’m old enough that an “…inverse thrust…” just might qualify as a good time.

      • nick kelly says:

        ‘Frankly, I’m old enough that an “…inverse thrust…” just might qualify as a good time.’

        Best laugh so far.

  6. Cas127 says:

    A lot of questions to be answered – two of which are,

    1) Lenders almost always require Board/Corporate Resolutions authorizing borrowing…exactly for the reason that the Board cannot disclaim knowledge of incurred debt. Maybe the relevant jurisdictions here (which may not follow international stds) don’t require such resolutions, but it is something to follow up on.

    2) Even though the reverse factoring might not show up as long term debt, it should show up as included in total liabilities, regardless of the line item. It might circumvent debt covenants (although loan docs are thousands of pages long to avd just such dodginess) but I don’t think it would avd all disclosure absent outright criminality…which is less likely (because if you were going to commit outright fraud, why even bother with the very expensive disclosures that were made…why not be completely silent on the topic?). As far as I can tell, Muddy Waters didn’t discover some undisclosed info…it simply clarified and publicized its interpretation of what the company opaquely disclosed.

    There is still a lot of the story to come out and probably a lot more people to share the blame.

    • Javert Chip says:


      I only understand “reverse factoring” at a conceptual level (roughly equivalent to my knowledge of quantum mechanics).

      Sounds like you have a lot more experience with “reverse factoring”. I’d appreciate couple-hundred-words-or-less of a hypothetical accounting treatment to fully capture & disclose reverse factoring.

      • cas127 says:

        No particular expertise on reverse factoring, just working off of various WolfStreet posts and general first hand knowledge of (US) corporate borrowing and accounting practices.

        These are edgy foreign jurisdictions so the rules/practices might be different but various WS posts do make it sound like Muddy Waters didn’t hire some PI to uncover nondisclosed docs/practices, they just spotlighted and explicated the potential consequences of items that were opaquely disclosed directly or indirectly already – that is basically MW’s “thing”.

        In the end, the manner of discovery may not matter much – except to the extent it may give insiders a legal out.

        Similarly f*ckery pokery goes on every day in US corporate accounting trmts (although the Board disclaiming knowledge of debt is rare in the US…that’s those pesky corp resolutions again…they make it hard to argue that some CFO went all ultra vires).

        There are sh*t ton of opaque/easily manipulated accounting stds in the US too…but because they are disclosed/okayed under GAAP, US boards are similarly likely to skate. Usually the financial hamster wheel spins fast enough so that the transient accounting games get made good…but not always.

        “The crime lies not within what the law forbids…but what it allows”

      • Wolf Richter says:

        Javert Chip,

        Below is my explanation from an article I wrote in 2018 on what Fitch called the “Hidden Debt Loophole.” I think is explains it reasonably well:

        How does reverse factoring work?

        Supply chain finance in general describes working capital management techniques with which a company extracts financial benefits from its supply chain. The “most publicized” of these techniques is reverse factoring. Fitch explains how it works and the reasons for doing it:

        Company A, the buyer, purchases goods in the normal course of business from company B [often not rated or junk rated]. Company A, typically a large well-rated corporate, will arrange a reverse factoring program with a financial institution.

        Once it has been on-boarded into the program and negotiated terms with the bank, B will be able to submit the invoices it has issued to A, once A has validated (or confirmed) them, to the bank for accelerated payment. It could get paid after 15 days rather than its usual 60 days.

        The supplier benefits because it gets quicker access to cash but at the lower borrowing cost associated with the stronger credit rating of its customer.

        The buyer benefits because reverse factoring allows it to borrow without disclosing it as debt:

        As part of this process, the bank will also often allow company A longer to pay the invoice than B would have accepted without the supply chain finance arrangement. So rather than paying in 60 days it may pay only after 120 days. This is effectively using a bank to extend payment terms….

        Thus, the buyer is borrowing 120 days of its accounts payable from the bank, while the bank pays the supplier. None of this debt that the buyer owes the bank shows up as “debt” on the buyer’s balance sheet but remains in “accounts payable” or “other payables.” The money borrowed from the bank becomes cash inflow on the cash-flow statement. And the highly touted figure “cash” increases. Hallelujah.

  7. sc7 says:

    This is great news for socaljim’s real estate.

    Trouble in the MBS market, mortgage rates popped overnight. If the bond bubble has been pricked…

  8. MCH says:

    Timing couldn’t be more perfect, they can blame it on the Coronavirus. Just call the earlier collapse in 2018 something that had lots of foresight to what the market was going to do in about 2 years.

  9. Unamused says:

    There’s a way to look up earlier comments in earlier articles by keyword, but I don’t know how it’s done.

    Any assistance would be very much appreciate. Thank you.

  10. Keepcalmeverythingisfine says:

    And……..the tide goes out. The list of naked swimmers is going to be a long one.

  11. Lasse says:

    Tomorrow is friday 13th….

    • Javert Chip says:

      At least the covered calls I sold about 4 weeks ago are expiring absolutely worthless to any one but me.

      In summary: I’m down a gazillion bucks on the underlying stock, but tomorrow I’ll make a few bucks on my expired covered calls.

      I gotta get another job.

  12. DO says:

    Well, maybe some of the investors will be relieved to know that part of the debt is halal ;)

    • MC01 says:

      That stuff was most likely sold to a Saudi pension fund or a Malaysian wealth mismanagement outfit. There’s even the possibility some tranches of that debt landed in Turkey, whose whole rickety economy is a disaster waiting to happen and only kept afloat by the ECB and the EU.

  13. Iamafan says:

    The first 84-day Fed Repo is out.
    The Fed accepted $78.4 billion with a weighted average interest of 0.255%

    The facts do NOT match the news:
    Today, March 12, 2020, the Desk will offer $500 billion in a three-month repo operation at 1:30 pm ET that will settle on March 13, 2020.

    $78.4 is only 15.68% of $500 billion. I told you so. There is NOT ENOUGH GOOD COLLATERAL OUT THERE in my opinion.

  14. Unamused says:

    Oops, the rot runs even deeper than Muddy Waters could have imagined.

    Rot? Sometimes it seems the entire global financial system is built on a gigantic pile of loose feces. It’s not just two or ten or a hundred bad apples. Globalisation and financialisation immensely incentivises nasty games so that even decent people have to play them just to keep up.

    A crisis of civilization is upon you.

    I’ve deleted the rest of my comment. No one could wade through that kind of rant even if they wanted to. I’m going up to the observatory to look at the stars and forget the world’s problems for a while, in the attempt to regain my accustomed composure.

    Hold off on the mood-altering recreationals, people. You all have work to do.

    • Robert says:

      Good comment, Unamused- it is like a chess game where everyone is forced to play, for all the marbles, against the reigning chess Grand Champion, Professor Moriarty.

    • Javert Chip says:

      If you’re philosophically opposed, inexperienced, or untrained enough to expect (any) financial statement to accurately (let alone to two decimal places) capture dynamic, multibillion-dollar international firm’s financial position in 50 pages (or less), then, given that level of understanding, conceptualizing the global financial system as “…built on a gigantic pile of loose feces…” probably overstates the situation, but you’ve articulated the perfect reason for staying far away. Nothing wrong with that.

      Another view: There are tens of millions of global firms, billions of employee/managers/investors (some of whom absolutely want to cheat & steal), trillions of dollars of capital, all coming from the world’s 225+ nations, representing thousands of different business and ethical cultures.

      Not all (or even a majority, or even a tiny minority) are crooked. Unfortunately goofy unicorns and the bad guys get most of the press (and far too little jail time).

      Suffice to say, successfully engaging (ie: making money) in this chaotic environment requires you have more than a few bucks, a brokerage account and easy dreams of magical wealth.

      I’ll close with the a posteriori observation that, what ever business you’re in (including the priesthood), I bet it also has some crooks in it.

    • Tonymike says:

      Bad apples in the barrel? No, the whole barrel is rotten and so is the financial system.
      The airlines are already lining up at the trough of pork money for a bail out. If and when they give a bailout it should be conditioned on that the airlines reduce baggage and change fees to zero for 5 years and no stock buybacks. Also, executive salary should be reined in for 5 years. ONLY then should they get any bailout money BUT, I am opposed to even that. Let the FREE MARKET do god’s work.
      I realize that I am pissing in the wind but sometimes you just have to shout.

  15. sierra7 says:

    Mr. Market bellied up to the bar and asked for a beer. It came with a good “head”…
    Mr. Market decided to “blow off the head” so he could get to the body……..
    Remember the “froth” being blown off is just about only 1/3 of what has to go before the beer will either taste good or will be outright poison!

  16. WES says:

    I used to read company financials until I realized they mean whatever you want them to mean.

    You can’t even determine if a company is cash flow positive these days!

  17. cb says:

    ” Reverse factoring is a form of financial engineering, an arrangement with a lender that turns the company’s trade accounts payable into debt that is owed to a financial institution. ”

    Either way, accounts payable or debt, they both amount to a liability and the Balance Sheet should reflect that, no?

    • Cas127 says:


      But presumably the Kabuki accounting was engaged in either to circumvent some lender’s too narrowly drawn debt covenant protection or to simply bamboozle the rubes in the first loss equity tranche (otherwise known as shareholders).

      At least in the US, the accounting f@ckery pokery is disclosed *somewhere*…but obscurely, opaquely.

      Just enough so that caveat emptor can be invoked and SEC rqmts met…and the Board can skate when the SHTF.

  18. James Morgan says:

    I understand only the conceptual level of “reverse factoring” (around equal to my understanding of quantic mechanics).

    Sounds like you have a lot of “reverse factoring” experience To completely capture and report reverse factoring, I would appreciate a couple-hundred-words-or-less hypothetical accounting handling.

  19. 911Truther says:

    If I’m reading GE’s 10- k correctly, and it’s certainly open to interpretation, GE does the same thing. GE Capital buys the Accounts Receivable from the GE Industrials segment of the company. Then the company headlines Industrials free cash flow, while burying true GAAP EPS losses on page 6 of the earnings press release.

    GE’s CEO Larry Culp, was paid $25m for 2019, salary of $2.5m, the rest in bonus.

    “GE is a bankruptcy waiting to happen” —— Harry Markopolos, Aug 15th, 2019

  20. lisa says:

    I was curious about the peaks in Volume of trades on the DOW, on 02/04/2018 and 8/25/2019- There’s probably no correlation- however, Looks like buy and sell patterns within the time period, up to through this month, even with the gradual volume changes, sure don’t reflect normal trading pattern overall, for the two specific days. There’s a peak buy and a peak sale of a couple billion or so, that sure seems abnormal. An anomaly of a $2billion trade volume differential seems bizarre. Maybe, I am just not reading the chart correctly. I realize there was a big drop in the market at the end of 2018, but 2/04/18 was a peak sell, differential. Was also trying to correlate with changes with Bitcoin peaks. With liquidity issues, and all the USD floating around internationally for years, especially under-covers, I am really curious about maneuvers to affect the USD valuation internationally versus anything and everything in the alt, and fiat media worlds.

    • lisa says:

      I forgot to include that the 3.82 peak sale on 3/8 is what caught my attention initially to start checking back along the VOL indicators. The overall volume just seems to have a gap, before any pullout from the overall daily trades/volume levels.

  21. Jason says:

    Again, who are the auditors and why do they seem to get a free pass!

    I am also an auditor, and if my work followed that of the big 4, I would have lost my licence years ago! oh and i would be facing multiple bankruptcy producing lawsuits……

  22. Willy2 says:

    – US companies are complaining about the “excessive regulation”. That’s why AIG wrote their CDSs from the UK where there is even less (or no) regulation. Remember AIG ?
    – That’s why companies like the UK so much. Who wouldn’t love “no regulation” ? It seems that is the reason NMC choose to list in the UK. No regulation and currying up favour with the “government” of Abu Dhabi. Perfect combination, right ?
    – Dubai is also in “a world of hurt”. Real estate prices are about to go much lower (an article from about a year ago):

    Source: Zerohedge.

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