Shares in Spanish drug company Grifols (GRLS.MC) plunged more than 40% on Tuesday after hedge fund Gotham City Research alleged its debt ratios are roughly double those officially reported.
Gotham City said Grifols, which makes drugs with human plasma, "manipulates" its reported debt and earnings before interest, taxes, depreciation and amortisation (EBITDA) artificially thus reducing its leverage ratio through "deceptive and incorrect" treatment of financial statements.
Grifols "categorically" denied the allegations in a filing to the stock market regulator on Tuesday. Grifols said the Gotham City report was "false information" and "speculation" and insisted it has disclosed all information about all the transactions flagged by Gotham City "with the highest level of integrity and transparency".
KPMG, which audited Grifols' 2022 accounts, did not respond to requests for comment. Spain's market regulator the CNMV said it was analysing the Gotham report and was in contact with Grifols from whom it would collect "the necessary data".
The hedge fund said it believes the leverage ratio is close to 10 to 13 times EBITDA, rather than the six times officially reported by the company.
Gotham City Research is a hedge fund focused on "due diligence-based investing". On its website, it said it has long or short positions in the companies it reports on.
The fund has targeted online advertising company Criteo (CRTO.O) and Apple-supplier AAC Technologies (2018.HK) and more recently French smart labels maker SES Imagotag (SESL.PA).
Active short-sellers like Gotham City, investors who bet on share price declines, are controversial as they can erase huge values on the companies they target.
One of the most high-profile recent cases was Hindenburg Research which prompted a massive $150 billion selloff in India's Adani Group last year, even though the company denied wrongdoing and the Indian Supreme Court cleared it of any. Adani shares later partly recovered.
Grifols shares have swung widely over the past few years as the company was hit hard by the pandemic when plasma collection was restricted, prompting it share value to fall by two-thirds.
The company sought to reassure investors with cost-cutting measures and a leadership change, boosting its shares by 43% in 2023. By the end of the year it sold a 20% stake in a Chinese unit Shanghai RAAS (002252.SZ) for $1.8 billion in a bid to reduce its debt.
