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Healthway Medical and free money from Lippo. (Renamed "OUE Lippo Healthcare Limited".)

Sunday, March 5, 2017

Donkey years ago, I invested in Healthway Medical Corporation (HMC). 

I liked the numbers and I thought it was relatively undervalued compared to peers.

Anyway, I got in at 10 cents a share and was mostly divested by the time its share price doubled months later.

Some of my comments from 2009.
Unfortunately, HMC had troubles later on and the last time I looked at it, its PE ratio was 100x or more. 

I still have a very small position in HMC made up of scrip dividends collected over the years. 

Free of cost to me and mostly forgotten, the shares are not worth very much today.

Although HMC's performance has been inconsistent, booking a huge impairment recently, the Lippo Group is making a takeover offer of 4.2c a share. 

They are the same people behind First REIT which is one of my largest investments and, of course, OUE Limited. 
I like to think that the Lippo Group know what they are doing and that they think they could transform the potential they see in HMC. 

Sounds familiar? 

Yes, that is OUE Limited's slogan: 

"Viewing every development as an opportunity to transform its potential."

Like I said, I have a very small stake that is free of cost. 

If HMC has a chance at being transformed and of doing better in future at the hands of the Lippo Group, I want a share, no matter how small it is. 

So, I am not accepting the offer.


Leopard said...

Hi AK,

I couldn't find a better place to leave this comment.

What is the default option for such cases? Say the form is not returned, does this mean the shareholder has rejected the offer?


AK71 said...

Hi Leopard,

If we have not accepted the offer, it means we have declined. :)

AK71 said...

OUE Lippo Healthcare Limited (OUELH) has proposed to acquire 10.63 per cent of First Reit's total issued units and a 40 per cent stake in the Reit's (real estate investment trust) manager Bowsprit Capital Corporation Limited for about $142 million, the healthcare company announced on Tuesday afternoon (Sept 18).

OUE Limited, OUELH's parent company, will acquire the other 60 per cent stake in Bowsprit.

OUELH will launch a renounceable underwritten rights issue to raise about $150 million to fund the acquisition, issuing about 2.2 billion new rights shares at 6.75 cents apiece on the basis of one rights share for every one existing ordinary share held by entitled shareholders as at the books closure date.

OUE and Itochu Corporation, which own 64.35 and 25.32 per cent stakes in OUELH respectively, have given irrevocable undertakings to fully subscribe for their entitlements under the rights issue.


AK71 said...

Lippo Karawaci recently proposed two divestments: a) a full sale of its shareholding in First REIT’s manager, Bowsprit, to OUE Ltd (SGX: LJ3) and OUE Lippo Healthcare Ltd (SGX: 5WA); and b) 10.63% of its total unitholdings in First REIT to OUE Lippo Healthcare.

The divestments should inject some cash into Lippo Karawaci, but Moody’s said that the sales do not “address the fundamental weakening of Lippo Karawaci’s operating cash flows.” Without the ownership over Bowsprit and a lower stake in First REIT, Lippo Karawaci would no longer receive management fees from Bowsprit and is also entitled to lesser distributions from First REIT.

Lippo Karawaci’s debt is mainly denominated in US dollars while its cash flow is in Indonesian rupiah. A strengthening of the US dollar against the Indonesian rupiah could put further strain on Lippo Karawaci’s business — with a weaker rupiah against the dollar, Lippo Karawaci has to pay higher interest expenses.

The Foolish takeaway
To be sure, the risk surrounding Lippo Karawaci was always present for First REIT. In 2007, Lippo Karawaci contributed to 85.9% of First REIT’s rental income. In its IPO prospectus, First REIT flagged out the risk surrounding its sponsor:

“First REIT’s revenue and ability to make distributions to the Unitholders will depend solely upon the ability of the Master Lessee [referring to Lippo Karawaci] to make rental payments. As such, the prospects of the Master Lessee’s other businesses, aside from those relating to First REIT, could impact on the Master Lessee’s ability to make rental payments to First REIT.”

With the recent rout in the Indonesian rupiah against the US dollar, the currency risk has been amplified. Investors should be mindful of this risk when investing in First REIT.


blazingruby60 said...

hi AK
with this new development in First reit would you buy at 1.20? ..or lower... i m building my passive income nestegg one twig at a time.
thanks n cheers

AK71 said...

Hi Ruby,

I have enough exposure to First REIT.

So, I won't be adding.

AK71 said...

Jenn Aloha says...
After the news, the shares starts to down on every trading day.

Thinking to get the new shares to level down my share cost. But now ...

Dear all expert , really need your advise whether it Still worth to to take up the new shares.

New shares will cost me 20k, or it more wiser to invest on another counter. Pls advise. Thx.

AK says...
Wah! You must be a big investor!

I don't give advice de.

I only talking to myself.

If an investment is making us worry, we probably invested more money in it than we should have.

AK71 said...

Jenn Aloha says...
Received the letter for subscribing the Rights. But share price dropped so much to 0.0068. I don't find it attractive taking up. Any expert views on this ?

AK says...
If you are OK with having your stake in the business diluted, you can choose to pass.
Check with your broker how much can you get if you sell your nil-paid rights in the market in this case and you will know if it is a sensible option.

AK71 said...

Wee Kim Lee says...
I also have not received letter. Out already?

AK says...
Should have received the notice over the weekend.
Closing date is 17 Oct 18.

AK71 said...

Reader says...
Hi AK, do u have any insights of 1st reit? Most articles talked about how OUE will benefit but not about 1st reit. It will be helpful if u can give some comments. 1st reit share price has been dropping. Wonder if it's a gd time to accumulate. Thanks.

AK says...
Do what you feel is right for you 🙂
For me, I think the deal is neutral for First REIT.

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