Hengkang Medical Announces New Journey as Restructuring Investor to Avert Delisting or Liquidation

On the evening of December 8, Hengkang Medical Group Co., Ltd. (hereinafter referred to as “Hengkang Medical”) announced that Beijing New Journey Health Industry Group Co., Ltd. (hereinafter referred to as “New Journey”) had been selected as the restructuring investor at the previously held review meeting for the selection of restructuring investors. This move will facilitate the company’s sustainable development and help stabilize employment for nearly 10,000 employees.

Hengkang Medical, formerly known as "Gansu Duyiwei Biological Pharmaceutical Co., Ltd.," owns the well-known Chinese proprietary medicine "Duyiwei Capsules." In 2013, the company was renamed Hengkang Medical and strategically positioned medical services as a core industry. Through mergers and acquisitions, it has established a network of 11 hospitals, with nearly 8,000 beds and approximately 10,000 employees.

Due to consecutive annual losses, Hengkang Medical was subjected to a delisting risk warning in the first half of 2020. In the second half of the year, the company fell into distress as a result of successive debt crises. In July 2020, Huabao Trust filed a lawsuit against Hengkang Medical over disputes involving the Jingfu Huayue and Jingfu Huacai funds, demanding payment for the acquisition of partnership interests and overdue interest, totaling approximately RMB 900 million. These two funds held controlling stakes in four hospitals, whose 2020 revenues accounted for 35% of Hengkang Medical’s total revenue.

In August 2020, Guangzhou Zhongtong Huida Commercial Factoring Co., Ltd. filed a petition with the court to initiate restructuring proceedings against Hengkang Medical, citing the company’s substantial debt scale, high asset-liability ratio, and evident likelihood of insolvency.

In late 2020, New Journey Health Technology Group Co., Ltd. began to intervene in the turnaround and restructuring of Hengkang Medical. In December 2020, New Journey invested approximately RMB 800 million to acquire all senior tranches of two funds held by Huabao Trust, thereby averting the delisting risk for Hengkang Medical that would have arisen from the auction of its core assets.

On February 9, 2021, New Journey Health Technology Group Co., Ltd. signed the “Cooperation Agreement on Restructuring Investment,” confirming that it would acquire shares and control of the listed company by subscribing to the increase in share capital converted from the company’s capital reserve. Hengkang Medical announced that this measure was taken to prevent Hengkang Medical from being directly delisted or facing bankruptcy liquidation.

On March 29, 2021, Hengkang Medical issued an announcement stating that Lin Yanglin, Chairman of New Journey Health Technology Group Co., Ltd., was elected as the company’s chairman and became its legal representative, while Liu Jun, General Manager of the Financial Management Department at New Journey, was appointed as Chief Financial Officer. The new board of directors implemented a series of measures that promoted the company’s stability and development, resulting in a 10.78% year-on-year increase in Hengkang Medical’s operating revenue for the first three quarters of 2021.

In July 2021, the Longnan Intermediate People’s Court of Gansu Province accepted the restructuring application for Hengkang Medical. In August, it designated Beijing JunHe Law Firm and Gansu Jiezhou Law Firm as the administrators for Hengkang Medical, entrusting them with carrying out matters related to the company’s bankruptcy restructuring. In September, the administrators publicly solicited and selected restructuring investors. New Journey Health Technology Group Co., Ltd. and China Minsheng Healthcare Investment Co., Ltd. registered their interest, participated in the investor selection process, and submitted restructuring investment proposals to the administrators.

On December 1, Hengkang Medical held a review meeting to select restructuring investors. The review committee, composed of creditor representatives, shareholder representatives, and employee representatives, voted to select New Journey Health Technology Group Co., Ltd. as the restructuring investor for Hengkang Medical.

Under the guidance and supervision of the Longnan Intermediate People's Court, the restructuring administrator is negotiating with New Journey Health Technology Group Co., Ltd. to sign the restructuring investment agreement and other related documents, while continuously advancing the work related to bankruptcy restructuring.

New Journey is a wholly-owned subsidiary of New Journey Hospital Group Co., Ltd., one of the largest comprehensive hospital groups in China. As of November 2021, New Journey Hospital Group held controlling stakes in more than 30 secondary-level and above hospitals, including six tertiary-level hospitals, with a total bed capacity of approximately 20,000.