As the shareholder revolt at medical property developer International Healthway Corp (IHC) drags on, activist investor Quarz Capital Management has entered the fray, indicating its support to oust the current board.
In an open letter to the board of IHC yesterday, Quarz attributed the severe drop in IHC's share price - down more than 85 per cent since its listing - to IHC's "overly aggressive asset acquisition strategy, lack of strategic focus and several execution issues" and overvaluation during IPO (initial public offering).
"IHC's development projects have all been substantially delayed with no committed execution timeline," Quarz added.
Quarz, which revealed that it has been accumulating IHC shares, has valued IHC's assets at $515 million.
The fund believes that IHC is trading at a sharp 48 per cent discount to its intrinsic net asset value of $195 million despite its high quality assets, based on Thursday's share price of 6.1 cents.
By refreshing the IHC board and executing a new strategy, IHC's share price can gain 40 per cent in the near and mid-term, Quarz said.
IHC shares rose 0.9 cents or 14.75 per cent to close at seven cents yesterday after the Quarz letter was published.
Quarz is calling for IHC to reduce its debt levels in order to drive shareholder returns.
IHC has a $50 million bond due in April.
Another $50 million bond matures next February, and the board said last month that it was working on various funding sources to meet its obligations, after market chatter that it was struggling to pay.
To boost the firm's poor cash flows and lower debt costs, Quarz is suggesting that IHC sell or list as a Reit (real estate investment trust) its 12 Japan nursing homes to generate asset management income.
It is also asking IHC to find a joint-venture partner to develop the Kuala Lumpur land bank into a medical hub with serviced residences, and consider an IPO of the China healthcare assets.
Quarz expressed "surprise" at the lack of active steps taken by the IHC management to stop destroying shareholder value "despite the multiple levers at their disposal", and said it will vote to replace the entire board at an extraordinary general meeting on Jan 23.
This meeting was initiated by two shareholders - Oxley Holdings deputy chief executive Eric Low and his sister Audrey - who cited "worrying performance and developments" at IHC.
Bourse filings show that Mr Low and Oxley boss Ching Chiat Kwong, who hold stakes of 7.11 per cent and 19.14 per cent respectively in IHC, had been picking up IHC shares since prices fell off a cliff last September when the Singapore Exchange uncovered that a few individuals trading among themselves were behind most of IHC's total traded volume since April.
"Savvy investors have taken notice and have been building up their stakes at distressed valuations," said Quarz.
Quarz portfolio manager Havard Chi said that he had been in contact with Mr Low but that the Quarz report was independent from them.
Meanwhile, IHC executive director Angeleca Lim said that the board is studying the recommendations put forth by Quarz.
"Most of the recommendations are not new and the board and management of IHC have from time to time discussed and considered similar alternatives," she told The Straits Times in an e-mail.
"IHC will continue to evaluate and adopt workable plans that would enhance the company's value. Quarz's assertion that a change of the entire board will drive better shareholder value is speculative," she added.
Last month, IHC co-founder Jong Hee Sen, who holds a 1.06 per cent stake in IHC, resigned from the board, saying that he could not effectively act as a director given the shareholder tussle.
Last October, Quarz targeted Metro Holdings in an open letter, calling for the property development and investment firm to pay out a special dividend.
Metro rebutted that its strong net cash position was a recent occurrence due to divestments, and its business remains capital intensive.
