ASX takes Smiles Inclusive to task as loan date looms

After National Australia Bank (ASX: NAB) cast aside the prospect of recouping 36 per cent of its $19 million loan to dental group Smiles Inclusive (ASX: SIL), the loss-making company has conceded it probably won't be paying the remainder on time.

SIL has until Friday to pay back $12 million to the bank - a deadline that raised questions from the share market operator, along with queries about whether a planned capital raising would also be used to pay back a separate $700,000 loan.

In its query sent on 26 August, the ASX claimed it had received market intelligence that a loan had been made by an SIL employee and sought clarification on several other concerns.

The ASX gave Smiles Inclusive a deadline to respond by 5pm on 28 August, but the response wasn't sent until 2 September and was released to the market after it closed on Friday, 4 September. 

Smiles denied the $700,000 loan was made by an employee, claiming the money came from lenders associated with a dentist with whom SIL has a longstanding relationship.

In its response, the Gold Coast-based group refused to give a direct answer to the question of whether any of the capital raising would be used to pay back that loan.

"SIL intends on complying with the terms agreed with the lender under the loan in question and will work with the lender to repay the loan upon agreement," the company said, having already postponed the repayment date from December 2019 to after June 2020.

"Whether the repayment is to be made directly out of the capital raised or not will be discussed with the lender and will be disclosed in the appropriate forum when agreement is reached with the lender."

ASX also asked SIL how it intended to pay make the payments to NAB under the deed of release by 11 September, but the response was equally undefined. 

"SIL is still working to finalise and put into effect its capital raising and recapitalisation plan," the company said.

"While this has taken longer than SIL had hoped, SIL remains optimistic the final stages of the plan will be agreed in the near future.

"Once agreed, SIL expects to request from NAB an extension of the repayment date, which it hopes to receive. Further details about the recapitalisation plan will be provided in due course."

Smiles Inclusive has previously indicated it reached agreements for various sales and consolidations as part of its recapitalisation plan.

However, any other form of capital raising will probably imply a significant dilution for existing shareholders, who have already seen their stock plummet by more than 95 per cent since listing in April 2018.

If share sales from founder Mike Timoney are to be used as a guide - although rights issues given to executives recently are worth 10 times that - then the company would need to raise 1.2 billion shares. 

If the capital raising were to be undertaken at the last trading price of $0.035 before SIL shares were suspended in March, around 343 million shares would need to be raised.

This compares to the current 149 million shares on issue.

The ASX also grilled Smiles Inclusive over a previous threat from the Australian Securities and Investments Commission (ASIC) in late June, which related to its failure to produce an audited financial report for the December half.

As ASIC did not grant an extension for the company to lodge its accounts, ASX has inferred the regulator would have been able to apply for a court order for SIL to "make good the default within 14 days".

"SIL has not yet complied with the direction but continues to work with its auditor and expects to be able to release its half-year financial report in the near future and once its recapitalisation plan is finalised," Smiles Inclusive replied.

"ASIC has not made an application to the court."

Business News Australia