Johannesburg — Leisurenet, which went into provisional liquidation at the weekend, owes Nedcor and the International Bank of South Africa R240m out of interest-bearing debt of about R390m, says interim LeisureNet CEO Peter Flack.

Other creditors include Investec and Mercantile Bank, which have an indirect exposure in terms of lease financing. Investec has mortgages on the property of four gyms worth about R40m, according to a member of the bank's credit committee. Analysts say there is also a debtors book of about R1bn, which could "evaporate" if the group's network of gyms closes.

But Flack insists it is business as usual at the group's SA gym chain, the Health &Racquet Club. "Liquidators have decided that the Health &Racquet Club is LeisureNet's best asset and must be kept operating," he said.

Flack says all gym memberships will remain intact during the liquidation but policy regarding long-term memberships will be "up to the attitude of the chain's new buyers".

"The percentage of long-term members is minuscule compared with the overall members. I doubt whether they will be affected in any way," Flack said. Long-term membership is a thorny issue with implications for revenue generation and cash flow management.

Flack stressed that the group's woes were the result of a mismanaged offshore expansion but that the Health &Racquet chain remained viable. The chain, which already has four possible buyers, may be sold through a controlled auction among bidders, he said.

LeisureNet's 58%-owned holding company, Healthland International, was exposed to debts of more than Pounds80m as a result of the opening of 17 new clubs simultaneously in Australia, Britain, Germany and Spain and the signing of 36 additional leases.

Facing saturation in SA's urban market and a slowing economy, the international operations were meant to be a strategy for strong future growth.

Aggressive expansion led it into a funding crisis which could not be resolved by an attempted capital-raising exercise with international banks in July. This was followed by a failed attempt to sell the offshore operations.

The group applied for liquidation and suspended trading on the Johannesburg Stock Exchange on Friday after Virgin Active, a subsidiary of the Virgin Group, decided not to buy Healthland.

This followed a decision by US fitness club operator Fitness Holdings Worldwide not to buy Healthland following a due diligence investigation.

Before its suspension on Friday, the stock plummeted 52% to 20c after 19million shares traded.