Healthscope suitor David Di Pilla’s HMC Capital hit by sharemarket slump

The investment manager has been hit by sharemarket woes, but still insists that it is the best option for stricken hospital operator Healthscope.HMC Capital

HMC Capital is looking to buy private hospital operator Healthscope despite issuing its own earnings downgrade.

Listed investment manager HMC Capital will not quit the pursuit of Australia’s second-biggest private hospital operator Healthscope despite issuing its own earnings downgrade.

While the David Di Pilla-run group is sticking to its aggressive $50bn funds under management target, its business model has been under pressure since its data centre float, the DigiCo Infrastructure REIT, flopped last December.

The HMC downgrade was driven by investments made in its flagship private equity fund that have been hit by the market downturn.

HMC shares dropped 6.3 per cent to $4.84 on Tuesday when Mr Di Pilla appeared at the Macquarie Australia Conference.

The company said that based on its year-to-date performance, annualised fiscal 2025 operating earnings per security is currently tracking at 66c before tax, down from the 70c disclosed last month.

The manager cited the performance of stocks held in its HMC Capital Partners Fund and other portfolio assets over April. But it insisted that it had a strong balance sheet with $675m of committed funding lines. Its private equity vehicle is being restructured so it can make a tilt at Healthscope.

The Brookfield-owned hospital operator has been on the brink of collapse with its future effectively in the hands of its lenders who are owed about $1.4bn. HMC is a landlord to Healthscope.

HMC and rival Bain Capital were reported by The Australian’s DataRoom column to be buying up parcels of debt in the struggling Healthscope which could give them sway in a sale, recapitalisation or even rescue if the business folds into administration.

HMC said it was “considered possible” that Healthscope may soon enter into receivership or administration if its lenders do not agree to an extension of the current forbearance period which expires this month.

Two HMC-managed strategies act as landlords to Healthscope, potentially giving it some leverage over the operator’s future, but also inviting a conflict of interest with real estate investors, which it has vowed to manage.

Healthscope part paid rent over March and April but the listed Healthco Healthcare and Wellness Reit and its unlisted healthcare fund hold termination and cross default rights in the event of any arrears by the tenant.

HMC is also in “advanced discussions” with multiple alternative hospital operators to re-tenant the property facilities it owns. The investor bought a portfolio of 11 Healthscope hospitals in 2023 for more than $1.1bn.

Healthco’s gearing is 31.7 per cent, which it said was at the lower end, but analysts have warned that it would face write downs if Healthscope collapsed or other operators took over the hospitals at lower rents. Some facilities could be at risk of closing or significantly curtailing their operations.

Overall, HMC said it was “well placed” to maintain a strong operating earnings trajectory, backed by its scalable platforms across areas ranging from retail property to energy and private credit.

But its diving share price and struggling listed funds have curtailed some options, and it is expected to focus more on wholesale strategies while working to turn around its problem funds.

Investors have queried the sustainability of HMC’s high-fee model when performance has suffered.