Abu Dhabi, United Arab Emirates, May 25, 2020. The NMC Pharmacy along the Zayed The First Street, Abu Dhabi. Victor Besa / The National Section: Standalone / Stock
Abu Dhabi, United Arab Emirates, May 25, 2020. The NMC Pharmacy along the Zayed The First Street, Abu Dhabi. Victor Besa / The National Section: Standalone / Stock
Abu Dhabi, United Arab Emirates, May 25, 2020. The NMC Pharmacy along the Zayed The First Street, Abu Dhabi. Victor Besa / The National Section: Standalone / Stock
Abu Dhabi, United Arab Emirates, May 25, 2020. The NMC Pharmacy along the Zayed The First Street, Abu Dhabi. Victor Besa / The National Section: Standalone / Stock

NMC Health's administrators begin legal action for 'in excess of £1bn' against auditor EY


Michael Fahy
  • English
  • Arabic

The administrators of NMC Health have begun legal action against the company's auditors, Ernst & Young.

In an initial progress report, administrators Alvarez & Marsal said that they are continuing to assess what legal action can be taken against individuals or third parties to recover some of the money that went missing from the company and have chosen lawyers to advise on potential actions.

Administrators "have initiated the legal process of making a claim against the company's auditor, Ernst & Young LLP, by issuing a preliminary notice of potential claim", the report states. It did not indicate the size of the potential claim, but a source told the Financial Times it was likely to be "in excess of £1bn" ($1.3bn).

Theoretically, the claim could be as large as the difference between the $6.6bn of debt the company was discovered to owe during an investigation into its affairs and the $2.1bn declared in its last set of publicly filed accounts.

Ernst & Young is also facing a probe by the UK's accounting industry watchdog, the Financial Reporting Council, into its work at NMC Health.

"We can confirm that EY has received a preliminary notice to a letter of claim from the administrators to NMC Health. It would be inappropriate to comment further," a spokeswoman for EY told The National.

The filing of a preliminary notice kick-starts a process by which a claim will need to be brought within six months. It is understood that the case will likely be filed in London, where NMC Health was listed on the stock exchange.

NMC Health is the UAE's largest private healthcare provider. The company reached a peak valuation of £8.58 billion in August 2018. However, its shares came crashing down after US-based short seller Muddy Waters Research published a report in December 2019 alleging the company had inflated its cash balances, overpaid for assets and understated its debts. It was placed into administration in April after investigators highlighted suspected fraudulent behaviour.

Progress reports are documents filed to UK company registrar Companies House in six-month increments after administrators are appointed.

The report states that "given the complexity of the investigation and legal claims / asset recovery strategy", it is not yet possible to say how much administrators expect to recover from legal action or how long it will take.

"It remains likely that the investigation and claims recovery strategy will require significant resources over a period of time," the report said.

"Given the sensitivity and potential to prejudice prospective claims, we are unable to provide further details at this time."

Administrators had continued to allow the UAE operations of the company to trade outside of an insolvency process, but had to place its main UAE business, NMC Healthcare, and 35 other local entities into administration through the Abu Dhabi Global Markets Courts last month to protect against creditor claims filed against them in the UAE.

Following this, Alvarez & Marsal managing director Max Frangulov told creditors that an investigation report will be filed by December which will outline “details of the fraud that took place" and will identify "the perpetrators and any colluding parties”.

Creditors were also told that administrators will look to achieve either a lender-led restructuring or a sale of the business, which still employs about 15,000 staff in the UAE and about 1,800 doctors, by April next year.

The administrators' fees for the work done during the first six months of the administration have reached more than £12.1 million, having spent more than 23,000 hours on the case, the progress report shows. A further £9.5m in expenses has been incurred, the bulk of which relates to legal costs and liability insurance.

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Four reasons global stock markets are falling right now

There are many factors worrying investors right now and triggering a rush out of stock markets. Here are four of the biggest:

1. Rising US interest rates

The US Federal Reserve has increased interest rates three times this year in a bid to prevent its buoyant economy from overheating. They now stand at between 2 and 2.25 per cent and markets are pencilling in three more rises next year.

Kim Catechis, manager of the Legg Mason Martin Currie Global Emerging Markets Fund, says US inflation is rising and the Fed will continue to raise rates in 2019. “With inflationary pressures growing, an increasing number of corporates are guiding profitability expectations downwards for 2018 and 2019, citing the negative impact of rising costs.”

At the same time as rates are rising, central bankers in the US and Europe have been ending quantitative easing, bringing the era of cheap money to an end.

2. Stronger dollar

High US rates have driven up the value of the dollar and bond yields, and this is putting pressure on emerging market countries that took advantage of low interest rates to run up trillions in dollar-denominated debt. They have also suffered capital outflows as international investors have switched to the US, driving markets lower. Omar Negyal, portfolio manager of the JP Morgan Global Emerging Markets Income Trust, says this looks like a buying opportunity. “Despite short-term volatility we remain positive about long-term prospects and profitability for emerging markets.” 

3. Global trade war

Ritu Vohora, investment director at fund manager M&G, says markets fear that US President Donald Trump’s spat with China will escalate into a full-blown global trade war, with both sides suffering. “The US economy is robust enough to absorb higher input costs now, but this may not be the case as tariffs escalate. However, with a host of factors hitting investor sentiment, this is becoming a stock picker’s market.”

4. Eurozone uncertainty

Europe faces two challenges right now in the shape of Brexit and the new populist government in eurozone member Italy.

Chris Beauchamp, chief market analyst at IG, which has offices in Dubai, says the stand-off between between Rome and Brussels threatens to become much more serious. "As with Brexit, neither side appears willing to step back from the edge, threatening more trouble down the line.”

The European economy may also be slowing, Mr Beauchamp warns. “A four-year low in eurozone manufacturing confidence highlights the fact that producers see a bumpy road ahead, with US-EU trade talks remaining a major question-mark for exporters.”

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