Mumbai: Special situations fund AION Capital Partners is in talks to acquire the entire debt of close to $200 million of hospital chain Seven Hills Healthcare Pvt. Ltd from a consortium of lenders led by Axis Bank Ltd, said two people aware of the development.
Seven Hills Healthcare, founded by Dr Jitendra Maganti, operates two hospitals in Mumbai and Visakhapatnam. AION is an India-focused fund established by Apollo Global Management Llc. together with ICICI Venture Funds Management Co. Ltd, with around $825 million in committed capital.
JP Morgan’s Asia infrastructure fund invested $72 million in Seven Hills Healthcare in 2008. As of 31 March 2016, the investor owned 49.9% stake in the company, according to the company’s filing with the registrar of companies (RoC).
“AION is in talks with Axis Bank to buy out the entire debt of the hospital chain owned by the lenders. Seven Hills’ Mumbai hospital, though meant to have almost 1,500 beds, is operating at only 20% capacity. That has severely restricted the debt repayment ability of the company," said one of the two people cited above, requesting anonymity, as he is not authorized to speak to reporters.
“As a matter of policy, we do not comment on client-specific details," a spokesperson for Axis bank said in an email response to queries. JP Morgan and AION Capital declined to comment.
Emails sent on Friday to Jitendra Maganti of Seven Hills Healthcare and other directors of the firm were not answered.
According to filings available with the RoC, Seven Hills Healthcare reported a revenue of Rs230.21 crore in 2015-16, against Rs207.87 crore in the previous financial year.
In 2015-16, the company reported a loss of Rs147.29 crore, as against a loss of Rs169.33 crore a year ago. Figures for the latest financial year were not available with the RoC.
“The current level of operations of the company could not support the fixed overheads (finance costs, depreciation and amortization expenses) incurred for its Mumbai Hospital. Time overrun, coupled with substantial increase in cost and lower operational level, had put strain on the operational cash flows of the company, thereby resulting in liquidity problem for the company," said Seven Hills in its annual report for the year 2015-16, filed with the RoC.
The financial difficulties led to default in repayment of dues to banks and financial institutions and breach of the financial covenant of debt service coverage ratio, it added.
Seven Hills and its lenders have been engaged in legal proceedings over the defaults, with lawsuits having been filed by both parties.
Indian banks saddled with high non-performing assets (NPA) are adopting various measures to clean up their books. Last month, Reuters reported that NPAs in the Indian banking system totalled around Rs9.5 trillion as of 30 June.
Banks have been pushing several defaulters to the National Company Law Tribunal, under the Insolvency and Bankruptcy Code, to implement resolution plans in order to ensure debt recovery.
Investors such as AION Capital have shown keen interest in acquiring either assets or debt of such distressed companies. In August, Mint reported that AION Capital had shown interest in acquiring stake in distressed companies Alok Industries Ltd and Bhushan Steel Ltd. In September, Business Standard reported that JSW Steel Ltd is joining hands with AION Capital for a bid to acquire Monnet Ispat & Energy, which is undergoing insolvency and bankruptcy proceedings.
AION Capital is among four suitors that have evinced interest in acquiring debt-laden steel maker Uttam Galva Steel, managing director Ankit Miglani told The Economic Times in October.