Econ Healthcare's audit committee to review investment policy

NURSING home operator Econ Healthcare's (Asia) audit committee will undertake a comprehensive review of its investment policy and related controls and safeguards, which will include strengthening the due diligence process before investments in listed equity securities, the company said on Friday (Jan 14).

This comes after Econ Healthcare is expected to book a S$3.4 million loss from selling off all of its 11.8 million shares in Hong-Kong listed interior design company Crosstec on Jan 12 after the counter plummeted.

Econ Healthcare also disclosed that between Nov 24, 2021 and Jan 7, 2022, its executive chairman and group chief executive officer, Ong Chu Poh, had acquired a total of 2.7 million Crosstec shares which he sold on Jan 7, 2022. Ong then acquired another 1.2 million shares on Jan 7, 2022, which he sold on Jan 13. His holdings of Crosstec shares amounted to less than 5 per cent of Crosstec's issued shares, based on publicly available information, Econ Healthcare said. Ong had no shareholdings in Crosstec as at Jan 14.

Meanwhile, Econ Healthcare's audit committee believes that the company's existing investment mandate and policy as well as related controls and safeguards need to be reviewed and strengthened by incorporating more effective measures.

Among the measures flagged was due diligence ahead of investing in listed equity securities should consider the target's company dividend policy, financial position, geographical location and industry; the lowering of the maximum investment limits, imposing sub-limits by asset class and imposing daily trading limits; as well as imposing requirements regarding asset mix and portfolio diversification.

Econ Healthcare had recently invested nearly S$4 million - which was funded by the group's working capital surplus - in 11.8 million shares, or 1.64 per cent of the issued share capital, in Crosstec. It first acquired 6.8 million shares on Dec 30, 2021 and 5 million shares on Jan 6, 2022; the shares were acquired via the market. On Jan 11, shares in Crosstec shares plunged 84 per cent to HK$0.38, prompting Econ Healthcare's decision to jettison the shares.

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In the filing to the Singapore Exchange (SGX), Econ Healthcare said that the audit committee will undertake a review imminently, with external professional advisers to be brought onboard to assist with the review. In addition, the board will be reviewing the composition of the investment committee, which will include the appointment of a third member to the committee.

Based on its existing investment policy, the group CEO is the chairman of the investment committee and is responsible for carrying out all approved investments.

Econ Healthcare said that Ong - who founded Econ Healthcare over 3 decades ago - had "made the investment in good faith" with the expectation of improving the yield of the group's idle cash. Crosstec was recommended as an investment to Ong by "an individual purporting to be Chan Yan Chong, an established academic and stock commentator". According to Econ Healthcare, Dr Chan is an acquaintance of Ong. "Ong has confirmed that he does not have any relationship with Crosstec, its directors or controlling shareholders," it said.

"The due diligence was primarily based on consideration of publicly available information on Crosstec, including information available on the website of the HKEx, such as its annual report and financial statements," Econ Healthcare added. It noted that before it first acquired shares on Dec 30, 2021, the share price was on an upward trend.

Highlighting that the group is unaware of the reasons behind the sudden, sharp drop in Crosstec's share price, Econ Healthcare said that the group made a strategic call to divest the shares, adding that it will focus its resources on growing its core business going forward.

Econ Healthcare expects the loss to be material to the company as it is about 9.1 per cent of the group's net tangible assets based on its latest announced financial statement as at Sep 30, 2021. After the disposal, the company's earnings per share for FY2021 is expected to fall to 0.89 Singapore cent from 2.22 Singapore cents before the disposal.

Econ Healthcare does not, however, expect the investment to have any material impact on the working capital, cash flow and operations of the group's business as it was funded by the group's working capital surplus.

Shares in Econ Healthcare shed 2.5 Singapore cents, or 8.93 per cent, to close at 25.5 Singapore cents last Friday.

READ MORE:

• Econ Healthcare expects to book S$3.4m loss from selling stake in Crosstec

• Brokers' Take: DBS downgrades Econ Healthcare to 'hold' as S$4m share investment nosedives 84%