Management

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Activist fund managers are becoming more popular in Asia, and in Singapore at least, minority shareholders are hitching a ride.

The new fad could bring a healthy dose of extra corporate governance, plus a focus on the interests of non-controlling stockholders. But even if value is being unlocked in the process, small investors need to tread with care.

On Monday, hedge funds and some other wealthy individuals managed, with the assistance of minorities, to remove the entire board of International Healthway Corp., which owns and operates hospitals and nursing facilities. The push, spearheaded by Quarz Capital Management Ltd. and Low See Ching, an executive director of Oxley Holdings Ltd., garnered support from holders equivalent to 69 percent of the company's shares.

If Low and Quarz Capital have their way, IHC will sell some of its assets and focus on operations in China and Malaysia. Sale proceeds will probably be used to pay down debt and increase dividends.

Jettisoning some parts of the business would also help shed light on IHC's financials. PricewaterhouseCoopers LLP added a disclaimer to the company's 2015 annual report and declined to be reappointed as auditor the following year. PwC said it didn't have enough evidence to justify a revaluation of properties by IHC that boosted profits, nor could it resolve discrepancies in the company's stated borrowings.

All that should be good news for shareholders, who have seen stock in IHC tumble 86 percent since the company's July 2013 trading debut.

Sick as a Dog
International Healthway Corp. shares have dropped 86 percent since they were listed on Catalist, the venue for small caps in Singapore
Source: Bloomberg

But what investors should bear in mind is that activist funds and rich people do have an agenda. Sometimes deals that involve asset sales and the like might end up benefiting big shareholders more than small ones.

While IHC's track record of mishaps suggests minority investors are better off without the previous board, some of the company's loudest protagonists for change may have had their eyes on another prize. Fan Kow Hin, a controlling shareholder of IHC, is also the single biggest stakeholder in Healthway Medical Corp., which might help to explain why the two companies tried, unsuccessfully, to merge last year. While most market watchers agree that Healthway Medical's property is valuable, some question whether it's fully reflected on the company's books.

Premium Portfolio
Real-estate-savvy investors have been eyeing the properties of Healthway Medical, a company that's associated with IHC, and wondering whether their value is fully reflected on the company's books
Source: Bloomberg

Healthway Medical said in its annual report that it owns some 60 general practitioners and dental clinics around the island. Most are located in Housing Development Board buildings, real estate that's gained significantly in value over the past decade and was probably acquired at a much lower cost. The company had just S$5.9 million ($4.2 million) of property, plant and equipment on its balance sheet at the end of 2015, but some hedge funds reckon it could be worth multiple times that.

Oxley's Low called for Monday's extraordinary general meeting after he and his sister, Audrey Bee Lan Low, amassed more than 11 percent of IHC's shares. Singapore-based Oxley is a developer whose portfolio includes residential, commercial and industrial projects that have retail and lifestyle elements in choice areas.

It's hard to imagine a bigger mess than the sort that engulfed IHC, and minority investors should welcome any resolution. But as with anything involving a lot of money, they need to read the fine print.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net