IHC saga: Focus shifts to former parent company

Healthway Medical clinic at Blk 177 Toa Payoh Central.
Healthway Medical clinic at Blk 177 Toa Payoh Central. PHOTO: ST FILE

Healthway Medical Corp, which spun off IHC, recently entered into a deal with Cayman-based investor

While activist investors are forcing International Healthway Corp (IHC) to undertake an internal audit of the medical property developer's affairs, attention is now turning to the firm's former parent company.

Healthway Medical Corp (HMC), the clinic operator that spun off IHC, recently entered into a deal with a new investor, Cayman-based Gateway Fund I. The arrangement could give Gateway significant control over how HMC is managed.

HMC wants to raise $70 million from Gateway by issuing convertible bonds that can be swapped for up to 90.17 per cent of HMC's existing share capital, or 47.4 per cent of its enlarged share capital.

The size of the conversion is still subject to shareholders' vote of approval, but the notes have other unusual features. For example, Gateway would get the right to nominate two non-executive directors to the HMC board and pick out a chief financial officer.

HMC would also need Gateway's consent before entering into "any material transactions, undertakings or corporate actions", including the appointment or removal of its chief executive officer.

HMC president Veronica Chan, who is equivalent to the CEO, did not immediately respond to an e-mail query on the notes issue, but HMC has said that the move is necessary to generate working capital and address "short-term liquidity needs".

The fund-raising comes relatively soon after HMC announced a share placement on Aug 29 to raise net proceeds of $3.75 million. It reportedly fully utilised these funds on Oct 25.

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Notably, HMC, which made a net profit of $1.68 million in the year ending December 2015, is owed $64 million by Healthway Medical Enterprises (HME), which HMC refers to in its books as a non-related party, or "Party A".

HMC is owed a further $21 million by an unnamed "Party B", and continued to extend to Party B $3.2 million in 2015 even after taking a $14.8 million impairment on Party B loans over the years.

HMC now intends to acquire HME, using the $64 million in uncollected receivables as part of the purchase consideration, which is yet to be determined. HMC did not previously address questions from The Straits Times on how much of the $64 million would be recoverable.

Another question on the minds of fund managers who have eyed HMC in the past is why it has continued to lend to Party A and Party B when impairments made over the years have cast doubts over these parties' ability to pay.

Unless these parties share a common shareholder with HMC, the loans do not appear to benefit HMC, they say.

Mr Eric Wong Ong Ming, who joined the board of HMC in May 2015, was the sole director of HME until he resigned in May 2015. He was also a former director of IHC.

IHC and HMC also share a common largest shareholder, Mr Fan Kow Hin. Mr Fan has stepped down from senior positions at both companies, as well as at HME in recent years.

Separately, Lippo China Resources, controlled by Indonesia's Riady family, emerged at the end of December as a substantial shareholder of HMC with a 6.05 per cent stake.

This, together with OUE's 12.5 per cent stake in IHC, is likely to keep investors guessing at what's next for both IHC and HMC.

Shares of IHC, which, like HMC, have tumbled since their debut, have recently attracted the attention of heavyweight investors such as Oxley executives Ching Chiat Kwong and Eric Low, as well as OUE, stirring hopes that IHC can be turned around.

A version of this article appeared in the print edition of The Straits Times on February 01, 2017, with the headline 'IHC saga: Focus shifts to former parent company'. Print Edition | Subscribe