OUELH explores recapitalisation to repay loans to OUE

OUE Lippo Healthcare (OUELH) on Tuesday announced a recapitalisation plan backed by its major shareholders to convert its S$189.6 million of shareholder loans from OUE to 4 per cent convertible perpetual bonds that can be converted into ordinary shares at 7 cents each.

This came on the same evening as it announced staggering net losses of S$97.5 million in its second half ended Dec 31, 2020, a reversal from a net profit of S$3 million a year ago. Revenue was flat at S$10.1 million for the six months.

For the full year, it incurred a net loss of S$98.7 million, compared to its year-ago net profit of S$3.4 million, despite revenue inching up 2 per cent to S$20 million, mostly due to stable rental income from its 12 nursing homes in Japan.

Its bottom line was affected by impairment losses for its assets and fair-value losses for its investment properties of up to S$57.9 million, versus an income of S$10.9 million a year ago, due to global economic conditions caused by Covid-19.

OUELH also incurred a share of loss for FY20 of about S$35 million, mainly due to First Reit's results, which were impacted by net fair-value losses of more than S$400 million as a result of its lease restructuring as well as from the four months of rental relief provided to lessees in FY20. The Reit also suffered a decrease in the fair values of its properties.

OUELH said that its move to convert its loans was therefore to strengthen its balance sheet, as the company has been in a net current liability position over the last few years due to the shareholder loans, which are payable on demand.

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It added that a stronger financial position will enable it to explore financing options to fund future growth opportunities.

The conversion of the shareholder loans into equity will also remove uncertainties over the firm's going-concern assumption, as well as the encumbrances over its assets from the loans.

OUE can only convert the perps 5.5 years later on or after Aug 31, 2026. This will keep OUELH from being distracted by having to seek funding for redemption of the perps or diluting existing shareholder value from the conversion. After Aug 31, 2026, the perps have no fixed redemption maturity deadline.

The indicative fair value of the perps is S$77.3 million, which represents a discount of about 59 per cent to the fair value of the loans. This will result in a one-off indicative gain of S$112.3 million to the group's statement of comprehensive income for FY21. There will also be recurrent interest savings of about S$6.6 million per year, as there will be no more interest payment on loans.

The conversion price is also at a premium of 125.1 per cent over OUELH's net tangible assets per share as at Dec 31, 2020 and 79.5 per cent over its Feb 16 closing price.

Shares of OUE added one cent to S$1.12, while those of OUELH closed flat at S$0.037.

Assuming a full conversion of the perps, OUE's direct shareholding in OUELH would be about 77.9 per cent of the enlarged share issue.

Majority shareholder Itochu has given an irrevocable undertaking to vote in favour of the deal. It owns 25.32 per cent of OUELH, while OUE owns 64.35 per cent.

The company will convene an extraordinary general meeting to seek shareholders' approval. OUE and its associates will abstain from voting.

RHT Capital advised OUELH, together with Zico Capital as independent financial advisor.