David Di Pilla’s HMC Capital is yet to see the details of a plan to convert Healthscope into a charity. Picture: John Feder
The future of private hospital operator Healthscope is becoming more uncertain after another major landlord said that it was yet to see the details of a proposal to convert the chain into a charity and dubbed the plan’s backers “vulture hedge funds”.
The description of the hedge funds, which effectively control the ailing private hospital operator after swooping on its debt register at deep discounts and calling in receivers for key entities, hardens the battle lines as the chain scrambles to survive.
On the one side are landlords – David Di Pilla’s HMC Capital and Canada’s Northwest Healthcare Properties REIT – which have complained the hedge funds controlling the hospitals are seeking to maximise returns and are yet to properly present a turn around plan.
While they want to see a full plan laid out, they are up against Healthscope receiver McGrathNicol and hedge funds, including British firm Polus Capital Management and US-based Canyon Partners, who are trying to win concessions from the landlords.
HMC Capital funds own the Healthscope-run Knox Private Hospital.
Healthscope chief executive Tino La Spina earlier this month announced plans to convert the remaining hospitals at the country’s second-largest private operator into a not-for-profit organisation, known as PurposeCo.
This had sparked opposition from landlords, who say their interests have not been properly taken into account and they have not been briefed.
“We have not received any proposal or submission relating to PurposeCo,” HMC Capital managing director real estate Sid Sharma said, when delivering the results of the HMC-managed HealthCo Healthcare and Wellness REIT.
He said the plan was being pursued by “vulture hedge fund lenders” and it could not be considered without the landlord having more detailed information relating to the 11 hospitals it owns.
Meanwhile HMC Capital was planning to install rival operators in the hospitals it owns.
Northwest Healthcare Properties REIT, which has a venture that owns 12 hospitals, has already warned that switching the operator into a not-for-profit would be unsustainable and may see facilities being closed down.
NorthWest Healthcare Properties managing director Richard Roos last week cast doubt on the plan to convert Healthscope to a charity.
“Financial engineering by offshore lenders that uses Australian taxpayers dollars to maximise their returns…sets a dangerous precedent,” he said.
He said converting companies to charitable ventures to in order benefit hedge funds would come at the expense of taxpayers.
HMC Capital is still in talks with the receivers but at its listed health fund’s results on Tuesday, it emphasised that it was instead pursuing a plan that would see it install operators of its own choosing at the hospital sites.
It said its deals with other operators would be on long-term leases and face rents would remain unchanged. But rental incentives, granted to ensure the viability of the hospitals, would result in a 10-15 per cent near-term cut to property valuations.
Analysts quizzed the listed landlord on how the plan would work, with the company indicating incentives were likely to be paid out over time rather than handing out upfront discounts.
Mr Sharma said HMC had executable lease agreements in place with alternative operators on a state-by-state basis for its hospitals and the operators had been in the sector for the long term.
In a shot across Healthscope’s bows, HMC also reserved its legal rights against Healthscope. These include cross default and termination rights in the event of the operator not complying with leases.
HealthCo units lifted 5.5 per cent to 71c in morning trade.