MMC president Richard Ferrer told The STAR that the medical institution is raising at least P500 million to partly finance its capital expenditure requirements, primarily for the construction of a new annex building and the renovation of the existing complex.
MMC will be issuing P500 million worth of convertible notes (to be converted mandatorily into equity after five years), at six-percent interest, with the existing stockholders, consisting mainly of doctors, having pre-emptive rights to subscribe to these notes.
In addition, he revealed that MMC is also looking at selling the notes to MPIC, which has recently acquired the 51-percent stake of real estate developer Landco from Metro Pacific for P667.7 million, as part of the latter’s reorganization and recapitalization plan.
Ferrer said they decided to take the route of issuing convertible notes because this is the fastest way of raising funds, as the money is needed to finance the construction which begins in January.
"Anyway, since the notes are convertible to equity, it is as if we are raising funds through equity, but without the delays associated with securing all the necessary approvals," he pointed out.
Metro Pacific, chaired by Manuel V. Pangilinan who also chairs MMC, has said that MPIC’s future business activity will not be limited to real estate, especially as several promising investment opportunities are presently under consideration. Pangilinan currently has one share in MMC, but is an independent director and chairman of the hospital’s board since July 2005.
For his part, Metro Pacific president and CEO Jose Ma. Lim earlier noted that with their recently concluded debt workout and the improving prospects of their businesses, management is determined to build a strong platform for MPIC, a new company that can raise substantial capital, make significant investments, and become an engine for long-term value creation.
In an interview, Ferrer said the amount to be raised from the issuance of convertible notes will be used for MMC’s facilities improvement program, which includes constructing a new annex building of up to seven storys and will have five basement floors, at the existing 1,200 sqm. parking lot. The new building will house the diagnostic and treatment center, operating room, cancer institute, and will include new doctors’ clinics. The existing structure will also be renovated.
"We are hoping to regain MMC’s status as the premier private medical institution in the country. But looking at the fundamentals, we can say we are still at par with the other hospitals," he emphasized.
Part of the funds that will be used for expansion will also be internally-generated as Ferrer admitted that the P500 million will not be enough. It is estimated that the cost of the program will be around P770 million.
The end of 2005 saw MMC posting a record-high net income of P37 million, eclipsing to the previous all-time high of P25 million.
Ferrer attributed the improvement in MMC’s bottom line to more prudent cost management as well as an increase in occupancy rate. For August and September this year, the occupancy rate was registered at 61 percent and 70 percent respectively, which he said is a big improvement compared to the same months in the previous years. The optimal occupancy rate is 80 percent, he added.
For 2006, MMC is looking at earnings before interests, taxes, depreciation, and amortization (EBITDA) level of P400 million and a net income of P140 million.
Currently, MMC has P1.2 billion in debts, but Ferrer stressed that the hospital has been able to pay interests on these debts.
He revealed that they met recently with creditors of MMC and have offered to pay P50 million as principal payment. MMC management is asking for some grace period on the payment of the principal debt, he added.
Ferrer likewise disclosed that the employees of MMC are in an upbeat mood, especially with the level of income being generated, as well as the entry of new investors and the infusion of professional management.
The hospital, which suffered losses totaling P300 million from 2002 to 2004, is trying to restructure P1.2 billion in bank debts and attract fresh capital.
Due to a faulty accounting system, MMC discovered the losses only in Dec. 2004. Before that, the once premier hospital thought it was still earning.
In July of last year, the hospital brought in some new board members, including Pangilinan and banker Francisco Dizon to help effect the changes.
About one-third of the hospital’s shares is controlled by the Fores and Araneta families. Another 25 percent is held by the heirs of other founders, like the Manahans and Alimurungs. The rest is owned by more than 100 doctors connected to the hospital.
When Pangilinan came in, they discovered that MMC has slid into a financial ICU, and that aside from the P1.5 billion in debts that need to be restructured, it needs to raise P500 million more, on top of the P250 million the present shareholders, mostly doctors, have contributed.
Still, the fresh money is barely enough to cover the construction of a seven-story diagnostic and treatment center that MMC plans to build on the present doctors’ parking lot to avoid losing patients to the newer Asian Hospital, Medical City, and St. Luke’s Medical Center.
Sources say the P770-million construction budget does not cover the various pieces of dollar-denominated medical equipment that would be installed in each key department.
MMC was founded in the 1960s by Dr. Constantino P. Manahan, Dr. Jose Y. Fores, Dr. Mariano M. Alimurung, Dr. Carlos L. Sevilla and Luis Ma. Araneta, Romeo Gustilo, Manuel Fernandez Sr., Jorge Araneta, Raul Fores, Julieta Ledesma and Daniel Go.