Rowsley can raise value by divesting non-core assets

IF billionaire Peter Lim had wanted to realise the fullest value for the Thomson Medical healthcare group, an initial public offering (IPO) would have been the cleanest way to structure a deal.

By choosing instead to inject these healthcare assets into Rowsley, the listed firm which he also controls, Mr Lim seems to be making an effort to reverse the fortunes of the loss-making company with interests in a mishmash of businesses including real estate, design consultancy and hotel management.

On Monday, Rowsley inked a deal to acquire the Thomson Medical's businesses from Mr Lim for S$1.6 billion, to be paid mostly in stock. An IPO was certainly something Thomson had considered. In September last year, Roy Quek, executive chairman of Thomson Medical and chief executive of TMC Life Sciences, told The Business Times that the group was gunning for an initial public offering. He told BT then: "If we were to do a listing now, we'd probably have a market capitalisation of S$2 billion to S$3 billion. I think we can do better. We're targeting S$5 billion for a start and trying to grow that."

Asked to comment on the deal structure during Rowsley's press conference held at Goodwood Park Hotel on Monday, Mr Quek told BT: "This really is the prerogative of the owner. How he wants to structure his ownership and his shareholding is not something that management should comment on."

Mr Lim did not attend Rowsley's press conference at Goodwood Park Hotel on Monday.

Certainly, the asset injection makes good sense for Mr Lim, who will swap his 100 per cent stake in private firm Thomson Medical and 70.36 per cent stake in Malaysia-listed TMC Life Sciences for S$1.6 billion in Rowsley shares and roughly S$40 million in cash.

Whether it is also a great deal for shareholders will depend on how much growth the company can deliver.

For shareholders' bonus warrants to be in the money, Rowsley's shares must trade above S$0.09 in the year following the asset injection. For their piggyback warrants to be in the money, Rowsley's shares must remain above S$0.12 four years after the bonus warrants are issued.

One concern is that Rowsley has a track record of issuing new shares to fund acquisitions, and not always living up to expectations.

In 2007, Rowsley unveiled plans to acquire a China solar energy firm by issuing S$2.7 billion worth of new shares. The firm had not sold a single solar panel at the point and the deal was scrapped months later.

In 2013, Rowsley became a real estate player by acquiring RSP Architects and a 9.23ha plot of land in Iskandar, Johor for S$545.5 million in all-share deals. The land plot in Vantage Bay was majority-owned by Mr Lim. The Vantage Bay project faced constant delays and was repositioned from a residential, office and retail project into a healthcare hub in 2015, with Thomson Medical roped in.

On Monday, Rowsley said that Thomson Iskandar Medical Hub, comprising a 500-bed hospital and 400-suite medical tower would be completed in 2021.

Last year, Mr Quek declared plans to add 300 beds to the 187-bed Thomson Medical Centre at Thomson Road in Singapore. Rowsley's announcements on Monday made no mention of this.

The group has yet to receive the relevant approvals from the Health Ministry to execute. Mr Quek explained: "In Singapore, we're always looking to expand. It's really a question of working with the authorities to make sure that whatever we have planned is in line with what they have in their own plans."

Clearly, Thomson Medical has faced challenges in realising its expansive ambitions, and needs a good team to hit the ground running.

At the same time, Rowsley has said that healthcare will become its main focus, and the proposed change in name from Rowsley to "Thomson Medical Group" will reflect this.

It plans to undertake a strategic review of its real estate, consultancy and hospitality assets once shareholders approve the acquisition in the first quarter next year.

To raise shareholder value, Rowsley could consider disposing of its non-healthcare assets to sharpen its focus on healthcare and shed its image as a hotchpotch grouping of Mr Lim's varied interests.

Marissa Lee

19 December 2017