HC Surgical says put option on Julian Ong's endoscopy clinic safeguards its interest
The Catalist-listed healthcare group would get back more than what it paid if it were to sell back to surgeon Julian Ong its stake in his private practice
Fiona Lam
Singapore
HC Surgical Specialists (HCSS) said it would get back more than what it paid if it were to sell back to surgeon Julian Ong its stake in his private practice that it had bought from him.
The Catalist-listed healthcare group has a put option that requires Dr Ong to repurchase the 70 per cent interest in his endoscopy clinic, Julian Ong Endoscopy & Surgery (JOES). Were it to exercise the put option, the minimum consideration HCSS receives will be more than what it had forked out in total to acquire the stake, the company said on Monday.
HCSS bought a 51 per cent stake in JOES for S$2.2 million in February 2017, before raising it by 19 per cent in October 2019 for S$3.8 million.
If Dr Ong's employment is terminated, HCSS will be able to exercise the put option.
In response to further queries from the Singapore Exchange, HCSS on Monday also said that the consideration payable under the put option is based on a percentage of the amount it had paid for the additional 19 per cent interest.
"This percentage will decrease with each year of Dr Ong's employment, given that Dr Ong would have contributed to the HCSS group," it added.
In June 2018, a woman lodged a complaint with the Singapore Medical Council (SMC) against Dr Ong, claiming that he and another specialist colluded to have sex with "vulnerable" female patients. She also forwarded the complaint to other doctors, prompting Dr Ong to file a defamation lawsuit against her which he lost in April. Since then, SGX has queried HCSS several times about matters including the company's investigation into the accusations as well as the safeguarding of the company and shareholders' interests.
In its latest response on Monday, HCSS said that when it purchased the additional 19 per cent stake in JOES, its plan was to eventually acquire the remaining interest to fully own the practice, barring any unforeseen circumstances.
"It was always the company's intention to further work with, nurture and monitor the performance of JOES to maximise its return on its investment," HCSS said.
As for the remaining 30 per cent interest in the practice, HCSS has not determined whether to proceed with the acquisition, given that the SMC investigation into the complaint is ongoing, it said on Monday. The company announced last September that it was planning to buy the remaining stake by Oct 31, 2021.
"As the situation develops, pending the SMC investigation, the board will not hesitate to consider further action that may need to be taken," HCSS noted.
In acquiring the 19 per cent stake, the HCSS board believed the deal would be beneficial to the group because JOES' profit was expected to continue growing. In 2017, when the initial 51 per cent interest was acquired, the practice's estimated profit before tax was S$660,000. This rose to S$1.79 million for the fiscal year ended May 31, 2018, and S$1.88 million for the year ended May 31, 2019.
This notwithstanding, the board remained "prudent" and decided it would be in the best interest of the company to bring its shareholding in JOES to 70 per cent by acquiring only 19 per cent more instead of the remaining 49 per cent at one go.
To further protect the company's interest, the put option also serves as a safeguard for the sum HCSS had paid, in the event of any cessation of Dr Ong's employment which could arise as a result of an adverse outcome from the SMC complaint.
Dr Ong's service agreement can be terminated by the company under certain circumstances, including Dr Ong being guilty for dishonesty or serious or persistent misconduct, if he does anything which may bring "serious discredit" to any group company or if he is struck off the register of doctors.
The exchange noted that the put option is exercisable within the 30th month and the 48th month of his employment, with the 48th month falling on March 31, 2021. It asked HCSS whether there are provisions to allow for the exercise period to be extended, in case of a protracted delay in the completion of SMC's probe. In response, HCSS said it is "evaluating the potential outcomes that may result from the SMC investigation".
HCSS shares fell S$0.01 or 2.9 per cent to S$0.34 on Tuesday.
