New Delhi; Fortis Healthcare Ltd’s play for Asia’s biggest hospital operator may be in some trouble with Khazanah Nasional Bhd, Malaysia’s state investment company, making on Thursday a bid of $839 million (Rs3,994 crore) to acquire an additional 28% in Parkway Holdings Ltd and take its stake in the company to a little over 51%.
And Fortis’ Indian rival Apollo Hospitals Enterprise Ltd may benefit from the deal should it go through.
Fortis, which has a stake of 25.27% in Parkway—in March it acquired an initial 23.9% stake for $685.3 million—can do one of three things, say analysts: sell, hold, or fight.
Judging from the way the company’s shares reacted— they jumped 7.34% to end at Rs149.85 each on a day when the Bombay Stock Exchange’s (BSE) benchmark Sensex index rose 1.7% to close at 16,666.40 points—most investors seem to be expecting the Indian firm to cash out, said an analyst.
“Market is betting they would be exiting at (a) profit,” said Jagannadham Thunuguntla, equity head at SMC Capitals Ltd in New Delhi.
Fortis is promoted by the Singh family that sold its controlling stake in Ranbaxy Laboratories Ltd to Japan’s Daiichi Sankyo Co. Ltd in 2008 for around Rs10,000 crore. Since then, the family has focused its efforts on healthcare (Fortis) and financial services (Religare Enterprises Ltd). The March acquisition of a stake in Parkway was the largest investment by an Indian healthcare firm; Fortis asked for and got four seats on Parkway’s board and Malvinder Mohan Singh, chairman of Fortis, became chairman of Parkway. He even moved to Singapore. Parkway operates 16 hospitals in Singapore, Brunei, Malaysia, India, and China.
Khazanah has stakes in Pantai Holdings Bhd, which runs nine hospitals in Malaysia, and in Fortis’ Indian rival Apollo Hospitals. Khazanah said it will consolidate its existing stakes in all these healthcare providers to become Asia’s premium healthcare platform —interestingly the same goal that has previously been articulated by Fortis’ Singh. “Khazanah has identified healthcare as one of the core areas that they want to get into,” said Ang Kok Heng, chief investment officer at Kuala Lumpur-based Phillip Capital.
Interestingly, Apollo has its own link with Parkway as well as Khazanah.
Parkway and Apollo have a 50:50 joint venture that owns the Apollo Gleneagles in Kolkata. Apollo’s chairperson Prathap C. Reddy has previously told the Indian Express that if Parkway wants to sell its stake in the joint venture, Apollo had the first right to buy it out.
Apollo is also the minority partner of Maxis Bhd, the Malaysian telecom firm, in its Indian venture Aircel Ltd.
Khazanah used to own a stake in Maxis before selling it back to the company’s promoter. It continues to hold a stake in Maxis’ affiliate broadcast firm Astro.
On Thursday, shares of Apollo ended 8.02% higher at Rs761.40 each on BSE.
A Fortis spokesperson declined comment. A senior executive, who is familiar with the company’s strategy and did not want to be identified, said it was assessing its options, but would likely take some time to respond because it was busy preparing to declare its results for the last quarter of 2009-10 and the full year on Friday.
A Parkway spokesperson declined comment. An Apollo spokesperson could not be reached for comment.
Khazanah’s offer price of Singapore $3.78 (Rs126.86) a share is higher than the $3.56 that Fortis paid in March. Khazanah’s offer is a 25.2% premium to Parkway’s last closing price and a 60.9% premium over its 12-month volume weighted average price.
Graphic: Ahmed Raza Khan / Mint
Fortis can go ahead with a counter offer, said SMC Capital’s Thunuguntla, but “they will have to write a big cheque”.
Fortis has the money to do that, said an analyst at a Mumbai-based foreign brokerage, who asked not to be identified citing company policy that doesn’t allow employees to talk to the media. Fortis has already paid for its Parkway stake through a bridge loan and arranged money to pay back the loan, and is in a position to raise more money, added this person. “They will have to raise more money and through a rights issue, the promoters can infuse money into the company to buy more stake. It would have to be enough to get them to 51% in order to counter Khazanah’s offer,” the analyst said, referring to the money the promoters earned from the sale of Ranbaxy to Daiichi Sankyo.
If the company chooses to react to Khazanah’s bid with one of its own, it may have to shell out an additional Rs3,600 crore, said Ranjit Kapadia, vice-president (institutional research) at HDFC Securities Ltd.
While doing this could start an auction of sorts, not doing so would mean Fortis remains a minority shareholder in Parkway. To be sure, the company can always sell its stake to Khazanah if it is legally allowed to do so and the analyst at the Mumbai brokerage did list this as a “possible option”. Still, that would mean a setback to Fortis’ global aspirations.
Fortis, which is set to announce its fourth quarter results on Friday, reported revenue of Rs608.40 crore in the nine months ended 31 December. The company has been on an acquisition spree since last year. It first stepped out of India with the acquisition of a hospital in Mauritius. In August, it paid Rs909 crore to acquire 10 hospitals from Wockhardt Hospitals Ltd and in March it acquired the Parkway stake.
Meanwhile, IFR, a Thomson Reuters service, reported that Khazanah is planning its first Singapore dollar bond issue to raise between S$300 million and S$500 million.
Reuters’ Harry Suhartono and Julie Goh contributed to this story.