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Eric Ng

Town Health International Holdings' management has defended its share sale to tycoon Li Ka-shing-led Cheung Kong (Holdings) at an 80 per cent discount to its initial public offering (IPO) price.

In July, the operator of a chain of medical clinics entered an agreement to sell 39.6 million shares  - or a 9.9 per cent stake after its flotation on the Growth Enterprises Market - to Cheung Kong.

According to its listing prospectus, the average cost per share was 25 HK cents, 80 per cent down on its HK$1.25 IPO price.

Town Health chairman Cho Kwai-chee said Cheung Kong's investment would generate substantial 'strategic value'.

'Cheung Kong's portfolio of shopping centres, residential estates and commercial buildings will facilitate Town Health in identifying suitable locations for the expansion of its medical centres network,' he said.

The company plans to increase its medical centres to 48, from 23, by March 31, 2003.

On September 20, the company entered into a separate agreement which would allow Cheung Kong to add to its holding, by acquiring a convertible note worth HK$31.56 million from Town Health.

On full conversion of the note into Town Health shares at 62.5 HK cents each  - half the IPO price - Cheung Kong would hold up to 20 per cent of the company.

Town Health is to sell 39.36 million new shares, and its parent Origin - which will retain a 49.1 per cent stake after the share offering - will sell 5.3 million existing shares in the company. Origin is 90.5 per cent-held by Mr Cho, who established Town Health in 1989. About 88 per cent of the offered shares will be sold to institutional investors and the rest to retail investors.

The share sale will see Town Health raising HK$49.2 million and Mr Cho HK$6.62 million.

During the past two years the company has paid dividends of HK$46.04 million  - exceeding its attributable profits of HK$44.63 million.

However, Mr Cho was not concerned this would put pressure on the company's cash flow and affect expansion plans.

He said the company would have cash inflows of about HK$130 million which would be sufficient to fund the expansion programme.

The inflows included net proceeds of HK$38 million from the IPO, forecast net profit for the 12 months to March 31, next year, of HK$32 million, and its pre-IPO fund-raising of HK$57.86 million.

Meanwhile, Dao Heng Securities and Dao Heng Insurance have made a combined profit of HK$7.3 million in four months, by selling their Town Health convertible notes to listed construction company Wang On Group for HK$13.39 million.

Mr Cho said some of the notes were issued to provide payment for Dao Heng Securities' service as a listing sponsor.

Dao Heng was replaced by First Shanghai as joint sponsor after a number of its senior corporate finance managers defected to First Shanghai Capital.

The other joint sponsor is CEF Capital - 50 per cent-held by Cheung Kong.

The offering opens today and will close on Thursday.

Trading in the shares will begin on October 18.



Deal struck in July gives Li company 80pc discount on IPO price