Gateway's sale of Healthway Medical notes to third parties raises eyebrows

Singapore

AHEAD of Healthway Medical Corporation's (HMC) extraordinary general meeting (EGM) to vote on the second tranche of S$60 million convertible notes, some minority shareholders have raised concerns whether private-equity fund Gateway Partners is there to make a quick buck at their expense.

Questions have risen over why Gateway chose to sell its first tranche of S$10 million in convertible notes to third parties after Lippo-linked Gentle Care has made an offer to buy over these notes at the same price it is offering to pay for each share of HMC.

While holders of convertible notes are expected to abstain from converting the notes to shares and voting in their own favour, there seems to be nothing to prevent the noteholder from selling those notes to third parties that may or may not vote along similar lines that the noteholder may have.

Shareholder Lim Oon Hock said in an email to The Business Times that Gateway's sale to third parties was conflicting with its response during the dialogue of the Securities Investors Association (Singapore) or SIAS with shareholders on April 12.

Mr Lim said: "During the dialogue session, Gateway kept saying that they will bring value to HMC and help steer the company, but they sold away all the S$10 million CN (convertible notes) to unrelated parties shortly after the issuance of the S$10 million CN as per SGX (Singapore Exchange) announcement on March 24."

When Gateway was asked who were the third parties it has sold the S$10 million convertible notes to and why it had picked them over Lippo, a Gateway spokesman declined to comment.

SIAS president David Gerald said investors were mainly concerned about the dilution from the S$60 million note issuance.

He said: "The shareholders needed the reassurance that this proposal was the best solution to the company's problems.

"Shareholders also asked if they vote 'Yes' for the resolutions, whether they could still consider the Lippo offer. The answer was affirmative."

Tan Boon Gin, SGX's chief regulatory officer, said that while the exchange cannot comment on specific companies, it expects the subscriber of a convertible bond, and/or associates of the subscriber, to abstain from voting at a general meeting where shareholder approval is being sought for that particular bond.

He said: "If the subscriber of an earlier convertible bond has sold the notes to a third party who the subscriber says is independent and unrelated to itself, SGX rules do not prevent the third party from voting based on his rights/entitlement.

"However, if SGX becomes aware that the third party is not independent of the subscriber, we retain the discretion to impose conditions, including the need to abstain from voting and will consider other actions."

When Gateway was asked if it intends to convert the S$60 million convertible notes into shares when it was approved and if it converts, whether it rules out tendering its conversion shares to Lippo in the voluntary general offer, the Gateway spokesman also declined to comment.

Gateway had sold the entire S$10 million to third parties in three parcels of S$3 million, S$4 million and S$3 million, which have been converted into shares. The identities of the third parties were not disclosed.

Gentle Care, which has been buying shares from the open market, has amassed 23.34 per cent of the total shares as at April 18.

The EGM will be held on April 21 at 10.30am at the National University of Singapore Society, Kent Ridge Guild House. Besides the resolution for the S$60 million note issuance, shareholders will also be voting for the resolution on the proposed acquisition of Healthway Medical Enterprises.

With additional reporting by Melissa Tan