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Spanish blood plasma company stock tumbles after short-seller research report

Spanish blood plasma company Grifols saw its shares plunge more than 40% at one point on Tuesday after hedge fund Gotham City Research questioned the Madrid-listed group’s financial reporting.

In a research note published Tuesday, short seller Gotham City said Grifols “manipulates” its reported debt and earnings before interest, taxes, depreciation and amortization to “artificially reduce reported leverage to 6x which we believe is closer to 10x-13x.”

“Should our estimate of the Grifols’ true leverage be correct, [Grifols] will face notably higher financing costs. Consequently, we believe shares are uninvestable, likely zero,” said Gotham City.

The hedge fund, run by Cyrus de Weck and Daniel Yu, says on its website that it “focuses on due diligence-based investing” and that “as of the publication date of our articles, we may have long or short equity positions in the companies covered.”

In a filing to the stock market regulator Barcelona-based Grifols called the Gotham research “false information and speculations” and said “we categorically deny and reject any allegations of wrongful accounting or reporting practices of our consolidated financial statements.”

“The related party transactions and disclosures reported by Gotham City Research have been fully disclosed and audited since 2018 and reported to the Spanish regulator,” Grifols added.

Shares in Grifols GRF, -32.94% GRFS, +0.54% initially fell 43% but were later down 27% for a market capitalization of €6.27 billion ($6.9 billion) after analysts who covered the drugmaker challenged the Gotham City report and said the off-balance sheet debt was well-known.

“No one who knows the story should be surprised by this,” wrote Patricia Cifuentes, an analyst at Bestinver, a Madrid-based asset manager, in a note. “When we downgraded the stock to sell in February 2022, we flagged…the high leverage, above the reported levels, due to the off-balance sheet debt.”

Cifuentes now has a buy rating on Grifols with a target of €15-€16.

Grifols will hold a board meeting Tuesday afternoon in reaction to the Gotham City report, board member Tomas Daga told Reuters, adding: “Our house is clean, we are very sure about that.”

Grifols did not respond to MarketWatch’s request for comment beyond the statement to the regulator.

The slide in Grifols shares left Madrid’s Ibex 35 index XX:IBEX down 1.9% and underperforming in a mostly weak day across Europe’s bourses. The DAX DX:DAX in Germany and the CAC 40 FR:PX1 in France were both down 0.3% as investors eyed a pullback in U.S. futures.

The U.K.’s FTSE 100 UK:UKX was barely changed, supported by a rebound in energy stocks as crude prices BRN00, +2.65% recovered some ground following Monday’s sharp fall.

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