New Milestone Health Takes Full Control of *ST Hengkang Through Bankruptcy Restructuring and Board Overhaul

On March 29, *ST Hengkang (002219.SZ) announced that Lin Yanglin, CEO of New Journey Hospital Group Co., Ltd. and Chairman of Beijing New Journey Health Industry Group Co., Ltd., was elected as Chairman of the Board and Non-Independent Director; Tong Zeyu, Executive Deputy General Manager of Minmetals Jintong Equity Investment Fund Management Co., Ltd., was officially elected as Non-Independent Director; Pu Jun and Lin Weiping were officially elected as Independent Directors; the composition of the four special committees under the Board of Directors was adjusted accordingly; and Liu Jun, General Manager of the Financial Management Department of Beijing New Journey Health Industry Group Co., Ltd., was appointed as Chief Financial Officer.

*ST Hengkang, fully named “Hengkang Medical Group Co., Ltd.,” gained prominence in the A-share market as the “first listed private hospital company.” Over the past six months, it was mired in a debt crisis, teetering on the brink of delisting, and faced a contested battle for control among several medical and pharmaceutical groups. Ultimately, Beijing New Journey Health Industry Group Co., Ltd. (“New Journey Health”), a wholly-owned subsidiary of New Journey Hospital Group Co., Ltd. (“New Journey Hospital Group”), emerged victorious as the strategic investor in its bankruptcy reorganization.

Signs of the board’s reshuffle emerged as early as 17 days ago. On March 12, *ST Hengkang announced that Song Lihua had resigned from her position as a director but would continue to serve as the company’s Executive Vice President; Feng Min and Yu Jiang had resigned from their positions as independent directors; and the board had nominated Lin Yanglin and Tong Zeyu as non-independent directors, and Pu Jun and Lin Weiping as independent directors.

Meanwhile, Que Wenbin, the controlling shareholder of *ST Hengkang and former richest man in Gansu Province, has been gradually reducing his equity stake in the company. On March 20, *ST Hengkang announced that 154 million shares held by Que Wenbin were auctioned off by the Gansu Provincial Higher People’s Court. Hualong Securities Co., Ltd. acquired these shares, thereby becoming the second-largest shareholder with approximately 8.26% equity in *ST Hengkang.

Following this change in equity structure, Que Wenbin still holds a 34.23% equity stake in *ST Hengkang. However, the number of shares over which he exercises rights—including voting rights, nomination and proposal rights, meeting attendance rights, supervisory and advisory rights, and information rights—totals 404 million shares, representing approximately 21.64% of Hengkang Medical’s total share capital.

Public information indicates that Que Wenbin entered into an agreement with New Journey Health, stipulating that after New Journey Health resolves the issues related to the two funds—Jingfu Huayue (Taizhou) Asset Management Center (Limited Partnership) and Jingfu Huacai (Taizhou) Asset Management Center (Limited Partnership) (hereinafter referred to as the “Two Funds”)—it shall have the right to require Que Wenbin to irrevocably delegate the voting rights corresponding to his aggregate holding of no more than 19.90% of the shares in *ST Hengkang to New Journey Health.

The two funds, with a combined size of RMB 1.23 billion, were initiated by *ST Hengkang as the subordinate investor. The hospitals controlled by these funds constitute the core assets of *ST Hengkang. As both funds are structured as “nominal equity but actual debt” vehicles, upon their maturity, *ST Hengkang faces the pressure to repay the principal and agreed-upon interest to the senior and mezzanine tranches in accordance with the partnership agreements. This obligation is a significant factor contributing to *ST Hengkang’s debt crisis. Consequently, the ownership of the senior and mezzanine interests in these two funds became a focal point of attention for all parties involved in the previous battle for control during *ST Hengkang’s restructuring.

At the end of last year, New Milestone Health acquired all senior tranches of two funds, totaling RMB 830 million. On March 10, New Milestone Health entered into a “Designated Repurchase Agreement” with *ST Hengkang, acquiring certain mezzanine senior partnership interests in the two funds from China Minsheng Trust, thereby assisting *ST Hengkang in resolving two debt disputes.

Based on the above, it is inferred that Lin Yanglin’s appointment as Chairman of *ST Hengkang is related to New Milestone Health’s assistance to the listed company in resolving debts triggered by two M&A funds.

Regarding his appointment as Chairman of *ST Hengkang, Lin Yanglin stated, “Hengkang Medical’s immediate priority is to expedite the implementation of its restructuring plan, resolve the company’s debt issues, and steer its operations and management back on track. Hengkang Medical has established a portfolio of pharmaceutical and healthcare service institutions across Gansu, Jiangsu, Liaoning, Henan, and Jiangxi provinces. The new board of directors aims to enhance *ST Hengkang’s core competitiveness from a long-term perspective focused on developing the broader health industry.”