Healthway Medical faces heat over contentious loans

HMC said it was forced into a $70 million convertible bond deal with a fund called Gateway last month after failing to obtain new loans or refinance maturing debts with bank lenders last year. That logic did not sit well with angry shareholders, who
HMC said it was forced into a $70 million convertible bond deal with a fund called Gateway last month after failing to obtain new loans or refinance maturing debts with bank lenders last year. That logic did not sit well with angry shareholders, who also flagged that HMC was losing more money in bad loans than it makes in a year.ST PHOTO: LAU FOOK KONG

Lending to non-related entities riles shareholders as it heaps hefty losses on firm

Embattled private clinic operator Healthway Medical Corp (HMC) faced more questions yesterday over why it repeatedly extended huge loans to two "non-related" entities despite facing financial pressure itself.

Information disclosed by the firm and from searches by The Straits Times show that one of the entities is a China-based medical centre owner with strong links to HMC.

The loans saga has long been riling shareholders. HMC entered into an onerous $70 million convertible bond deal with a fund called Gateway last month. It said it was forced into this after failing to obtain new loans or refinance maturing debts with bank lenders last year.

That logic did not sit well with angry shareholders, who also flagged that HMC was losing more money in bad loans than it makes in a year.

HMC's net loss widened to $40.9 million in the fourth quarter ended Dec 31 from a net loss of $904,000 a year earlier. That swung HMC into a full-year net loss of $40.2 million for 2016, from a net profit of $1.68 million in 2015, it said yesterday.

Dragging down the bottom line was a $15 million allowance HMC took last year for loans extended to Healthway Medical Enterprises (HME), a specialist clinic incubator.

HMC was also forced to take a $21.6 million allowance for loans extended to a certain unrelated "Party B" that HMC declined to name until yesterday.

Party B is Wei Yi Shi Ye, a China-incorporated medical centre owner, with which HMC has a management contract.

A Straits Times search on China's company registration website found a firm called Shanghai Wei Yi Shi Ye. As of 2014, Chinese national Yang Zheng was its sole shareholder. Its sole executive director was Ms Jamie Fan Wei Zhi, the daughter of HMC co-founder and former executive chairman Fan Kow Hin.

Mr Fan, who remains a substantial shareholder of HMC, could not be reached for comment.

HMC declined to comment on Wei Yi Shi Ye, except to say that its "continued funding to Party B has been largely driven by the group's intent to expand into the China market and to facilitate the continued operations of the medical centres in China in order to preserve the value of relevant licences".

Neither HMC president Veronica Chan nor financial controller Goh Lay Lan could furnish details of the management contracts or loan terms entered into with HME or Wei Ye Shi Ye.

Ms Chan joined HMC last September, Ms Goh last November.

They stressed that the Gateway loan was the best they could find, as they had no properties to mortgage and talks with lenders were stalled until a scheme by International Healthway Corp to take over HMC was terminated last August.

And while HMC must pay Gateway 12 per cent interest per annum on $70 million for the first three months and 16.5 per cent per annum thereafter, Ms Chan said that HMC intends to convert the notes to zero-coupon convertible bonds after six months.

These notes are being secured by a pledge of the shares of all the companies in the HMC group, which means shareholders could lose everything if HMC defaults.

But the interest will only have to be paid in cash five years after issuance when the zero-coupon bonds mature, said Ms Chan.

Gateway is preparing to transfer the cash to HMC on March 9. Investors will get to vote only on whether or not the zero-coupon convertible bonds can be issued, not on the issuance of the 16.5 per cent notes or the rest of the deal terms.

Lippo, which launched a rival offer to take over HMC after the Gateway deal was announced, controlled 18.44 per cent of HMC as of Wednesday.

HMC shares opened at 4.9 cents after a trading suspension was lifted yesterday and closed at 4.8 cents, up 0.7 cent from Feb 7. HMC was the second-most active counter after Noble, with 217.1 million shares changing hands.

A version of this article appeared in the print edition of The Straits Times on February 25, 2017, with the headline 'Healthway Medical faces heat over contentious loans'. Print Edition | Subscribe