Indonesia's Lippo Group, which has built a 21.9 per cent stake in Healthway Medical Corp (HMC), is offering a lifeline $10 million loan to the troubled clinic chain operator.
But the money can be used only to pay HMC doctors and nurses, The Sunday Times understands.
Lippo's loan is repayable after 12 months; interest is only 5 per cent a year. In comparison, the cash-strapped HMC has had to borrow at usurious rates working out to as much as 65.7 per cent a year - based on a recent disclosure to the Singapore Exchange (SGX) - for much less than $10 million.
In return for the lower rates, however, Lippo is asking for security in the form of a general pledge over all of HMC's businesses and assets.
This pits Lippo directly against another investor, Cayman-based Gateway, which had earlier inked an agreement with HMC to raise $70 million from Gateway via convertible bonds that can be swopped for up to 90.17 per cent of HMC's existing share capital, or else incur an interest of up to 16 per cent a year.
For security, Gateway wants the bonds to be secured on the shares of all HMC group companies.
It remains to be seen which way HMC will sway. But even as Lippo and Gateway lock horns over the opportunity to buy one of Singapore's largest private clinic chains at distressed prices, HMC continues to sink under a mountain of unpaid payroll and debt obligations.
Many wonder how much of HMC's value right now can be fully transferred to the victor at the end of it all.
The situation is precarious: HMC had a cash balance of just $527,000 at the end of last year and needs $10.7 million to settle overdue payroll and debt obligations by March 31.
Many of HMC's minority shareholders - as well as its employees - are still scratching their heads over how HMC has fallen into the tough position it is in. After all, the company is in a growing industry, with an ageing population driving up demand for healthcare.
The first HMC family clinic was opened in 1990 by Dr Wong Weng Hong, who expanded it to 15 clinics by 1997 and 31 by 2002.
In 2006, Dr Wong joined up with Mr Fan Kow Hin, Mr Aathar Ah Kong Andrew and other investors to expand the network to 38 clinics.
They grew the chain to more than 80 family medicine and specialist clinics by 2008, and brought it to list on the SGX that year.
In a memo to doctors and staff dated Feb 28 and seen by The Sunday Times, president Veronica Chan appealed to employees for more time to credit their salaries. "It has been a trying year for Healthway Medical; rising costs, rental rates and lacklustre business and consumer sentiment have resulted in our cash flow being out of sync."
If not for allowances taken on the doubtful loans and other non-recurring items, HMC would have been profitable last year. In fact, revenues were growing and operating cash flows from its clinics were positive in the past three years.
Rather, HMC's cash shortage has a lot to do with questionable loans made to two entities over the years.
For years, these entities appeared on HMC's annual reports as unnamed and unrelated parties, "Party A" and "Party B". Only recently has HMC revealed their names, for which The Straits Times found strong links between "Party B" - a Chinese company known as Wei Yi Shi Ye - and Mr Fan.
The SGX has called for an independent review of these loans, which date back to 2010.
Incidentally, Mr Fan filed for bankruptcy on March 8, putting his HMC shares in a sort of limbo.
A hearing is scheduled for April 6. If he is adjudged bankrupt, then the court-appointed trustee takes over his shares, and will seek a sale to pay creditors.
Left in the dark are Healthway staff. One employee, who spoke on condition of anonymity, told The Sunday Times: "The staff had been really working hard to try to make things work out for the company. But it's really tough." Another said: "Morale is very low now."
In the Feb 28 memo, Ms Chan apologised to staff for not crediting their salaries. "We guarantee that all salaries will be paid out latest by March 7."
HMC then paid all staff covered under the Employment Act within the timeframe, but revealed in a March 11 statement to the SGX that it still owed doctors and senior management their February dues, amounting to $3.9 million.
No doctor turned up for work at seven of its family clinics on March 13. Patients who visited were told that this was because certain anchor doctors had fallen ill and no locum doctors could be found to take their place.
All this prompted a visit by Manpower Ministry officials to the HMC office, and HMC has since said that payments to only a few locums remain to be settled.
Sources close to HMC also said it has run out of some medicine after falling behind in payments to drug vendors. But an HMC spokesman called the shortage "minor", adding: "We are more conservative in our ordering, but our major suppliers are still supplying us and our credit terms remain at 60 days."