The Singapore Exchange (SGX) has called on private clinic operator Healthway Medical Corp (HMC) to appoint an independent reviewer to look into questionable loans made by the group to two entities.
Since 2010, HMC has lent liberally to Healthway Medical Enterprises (HME) and China-incorporated Wei Yi Shi Ye, and taken multimillion-dollar impairments when the loans were not repaid.
In a bourse filing late on Monday night, HMC said the independent review will determine if HMC has breached SGX Catalist listing rules.
The regulatory intervention comes after The Straits Times reported last Saturday that Wei Yi Shi Ye may have strong links to HMC's long-time executive chairman Fan Kow Hin despite HMC's claim that it is an unrelated party.
Mr Fan's daughter was the sole executive director of Shanghai Wei Yi Shi Ye, according to documents uncovered by The Straits Times.
The allowance that HMC took on its loans to HME and Wei Yi Shi Ye last year alone.
The amount that HMC hopes to raise from a fund called Gateway, via convertible bonds.
The interest rate that this loan might incur per year if the convertible bonds are not swapped for up to 90.17 per cent of HMC's existing share capital.
Mr Fan quit HMC in May 2015 after helming the company for eight years, and remained a 12.86 per cent shareholder as of last April.
Last year alone, HMC took a $36.6 million allowance on its loans to HME and Wei Yi Shi Ye.
The saga of HMC really frustrated minority shareholders, including me, who have suffered for a long, long time. ''
SHAREHOLDER TAN KAY CHENG, who wrote to the SGX seeking intervention and likened the Gateway deal to a "poison pill".
In January this year, HMC signed a deal to raise $70 million from a fund called Gateway via convertible bonds that must be swapped for up to 90.17 per cent of HMC's existing share capital, or else incur an exorbitant interest rate of up to 16 per cent a year.
Unless it accepts the Gateway deal, HMC will face a going-concern issue, the board said earlier.
HMC's shareholders have shot back at the board's lack of transparency and questioned why it needs to borrow $70 million, since less than 40 per cent of that will be for working capital and to repay the banks.
Shareholder Tan Kay Cheng, who wrote to the SGX seeking intervention, likened the Gateway deal to a "poison pill", designed by the board to fend off any unwelcome takeover bids at the expense of its own financial survival.
Indonesian conglomerate Lippo made a rival offer to take over HMC weeks after the Gateway deal was announced. It had 18.44 per cent of HMC as of last week, but has since kept silent.
The Gateway deal also includes a "change of control redemption clause", which means that in the event that Lippo's offer turns unconditional, the $70 million must be returned to Gateway in 30 days, with a 25 per cent ($17.5 million) early redemption premium that HMC does not have the cash to foot.
Mr Tan was disappointed that SGX had not asked for an independent review of the Gateway loan, which looks set to be sealed by a cash transfer to HMC on March 9.
"The saga of HMC really frustrated minority shareholders, including me, who have suffered for a long, long time," he said. "Even if HMC's borrowing of the $70 million is within the rules of the game, SGX should use moral suasion to convince them not to proceed."
Correction note: This article has been amended to clarify the “change of control redemption clause”.