Makati Med finalizing terms of planned P500-M notes issue

Makati Medical Center is close to finalizing the terms of its proposed convertible notes issuance amounting to at least P500 million.

ATR Kim Eng Capital Partners Inc. managing director Marcelito Ordonez, who also serves as Makati Med’s financial adviser, said the hospital is in talks with existing shareholders and at least two or three institutional investors for possible infusion of fresh capital into the cash-strapped medical institution.

Metro Pacific Investment Corp. (MPIC), the newly-incorporated debt-free investment holding company of Hong Kong’s First Pacific Co. Ltd., earlier said it was considering taking up equity interest of between 24 percent to 30 percent in Makati Med.

The P500 million worth of convertible notes represents 27 percent of Makati Med’s outstanding capital stock.

Ordonez said the convertible notes issuance may take place within the month or as soon as the necessary documentation of some papers has been completed.

He said the size of the notes issuance will be dependent on the appetite of its existing shareholders and other prospective investors, which include a foreign company.

Makati Med is owned 10 percent by the Forres-Araneta family, five percent by the San Miguel Group, and the biggest balance is held by its doctors.

The issue, once completed, will result in MPIC becoming the biggest shareholder of Makati Med.

Total shareholders’ equity of Makati Med currently stands at P1.6 billion. Ordonez said proceeds from the convertible note issuance will be used to fund the establishment of a seven-storey building that will house a diagnostics center and the improvement of hospital facilities. Makati Med needs about P1 billion to P1.5 billion to fund working capital requirements.

Under the loan restructuring program, Makati Med’s creditors have required an equity infusion as one of the pre-requisites for agreeing to restructure their respective loan exposures to the hospital.

Saddled by its huge debt, Makati Med incurred P300 million in losses over the past three years. This, however, was never discovered until Dec. 2004. The hospital allegedly had a faulty accounting system that made it look like it was earning.

Among the hospital’s creditors include the Development Bank of the Philippines, which has a P350-million exposure in the hospital, Rizal Commercial Banking Corp., Insular Savings, the Social Security System, and DEG of Germany, which has an exposure of an equivalent of P300 million in euros.

Makati Med officials and employees are pinning their hopes on Metro Pacific chairman Manuel V. Pangilinan who is known for engineering the turnaround of Philippine Long Distance Telephone Co. and Pilipino Telephone Corp. through a disciplined "convergence strategy" consisting of consolidation, diversification, and expansion.