New Delhi/Mumbai: Fortis Healthcare (India) Ltd, the country’s second largest hospital chain, is set to become Asia’s top healthcare provider with a total revenue of at least Rs 4,800 crore and an integrated network of hospitals, and diagnostic and dental clinics spread across 10 countries by absorbing the promoters’ privately held Fortis Healthcare International Pte Ltd.
The Indian firm will buy the entire stake of Singapore-based Fortis International—currently held by the Delhi-based Singh family through holding company RHC Financial Services (Mauritius) Ltd—in an all-cash deal, it announced on Monday.
The merged entity will be renamed Fortis Healthcare Ltd after an independent agency works out the details of the transaction, including the valuation of the foreign company, by December.
Fortis India, in which promoters Malvinder Singh and Shivinder Singh and their family own a majority stake, has a network of 62 hospitals across the country.
Once merged, the combined entity will have a network of 74 hospitals, 580 primary healthcare centres, 190 diagnostic centres and 188 day-care specialty centres. Employees will total 23,000, including 4,000 doctors.
“Unless the asset is fairly valued, one cannot say whether it is really beneficial for the listed company or not,” said a sector analyst with a foreign brokerage, who didn’t want to be named.
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The Singh brothers set up RHC Financial Services (Mauritius), a special purpose vehicle (SPV), in 2009 to acquire overseas healthcare assets soon after the divestment of their 33% stake in Ranbaxy Laboratories Ltd. The SPV owns Fortis International, which in turn built up an asset base of six companies in the span of a year through acquisitions.
If the newly created assets are sold to the Indian listed company at an exaggerated valuation, the promoters will benefit, the analyst said.
“Going by the valuation that the promoter group put on the stake in unlisted Super Religare Laboratories (SRL), which was sold to Fortis India, this may also be a fancy valuation,” he said. “Fortis International is a privately held company fully owned by the promoters. One does not know the actual profitability and valuation of that entity.”
Fortis India said in April that its board had approved the acquisition of an 86% stake in SRL to be based on third-party valuation by private equity fund Avigo Capital Partners. The stake was valued at Rs 930 crore.
Fortis India said the acquisition of the foreign company would unite and strengthen various areas of expertise. Fortis International is involved in primary and tertiary healthcare and diagnostics, including two dental clinics, and has a presence in nine countries across the Asia-Pacific.
“With the scale and size we have in terms of infrastructure, medical capability and management skills, the ability to grow across various markets is much stronger from an operational efficiency perspective,” said Malvinder Singh, group chairman of Fortis Healthcare.
The integration is in line with the new strategy to integrate the Fortis group’s healthcare services business across the Asia-Pacific, said Vishal Bali, the newly assigned global chief executive officer of the group.
Fortis International’s acquisitions in the region include an under-construction hospital in Singapore in December, followed by the acquisition of hospitals in Australia, Hong Kong and Sri Lanka, apart from a diagnostics services firm in Dubai this year.
Fortis India has grown organically and through acquisitions over the past decade, having scaled up operations from a single hospital in 2001 to 62 hospitals in 2011 and 190 diagnostic labs across India. It bought 11 hospitals of rival Wockhardt Hospitals in 2009.
The merged entity will benefit from size and scale, and will be able to leverage its network across various countries with wider service delivery capabilities, according to Bali.
Fortis International currently owns Quality Healthcare Ltd, the largest primary care network in Hong Kong with 580 centres; Dental Corp. Pty Ltd, a large dental care network in Australia and New Zealand with 174 centres; Fortis Speciality Hospital, the under-construction specialty hospital in Singapore, and a key stake in the 350-bed Lanka Hospitals Corp. Plc in Sri Lanka. It also owns a large private pathology lab in the UAE.
In July, it announced the acquisition of a 65% stake in Hoan My Medical Corp., one of Vietnam’s largest private healthcare provider groups with over 1,100 beds across six hospitals.
The new management structure of the combined entity will be aligned to manage the global business of Fortis Healthcare, including India.
Malvinder Singh will be the executive chairman of Fortis Healthcare and Shivinder Singh the executive vice-chairman.
The merged entity’s Indian operations will be headed by Aditya Vij and international business will be headed by Eng Aik Meng. Both will report to global CEO Bali.
Shares of Fortis Healthcare closed at Rs 144.30 apiece on BSE, down 1.9%, on Monday, while the Sensex lost 1.11%.