KKR invests `550 crore in Apollo Hospitals’ holding firm2 min read . Updated: 29 Oct 2013, 12:17 AM IST
The firm, PCR Investments, will use some of this money to retire debt on its books
The investment is in the form of debentures that have an option to be converted into equity shares in the Chennai-based hospital chain at the end of the five year period, said a senior official of the company who did not want to be named. Executives at KKR could not be immediately reached for comment.
The partnership involves a ₹ 550 crore long-term investment by KKR, together with its affiliates and select investors, in PCR, the holding company for the Apollo Hospitals group, Apollo said in a statement.
Experts say structuring such deals is quite common in large transactions in the unlisted space in India as investors are increasingly emphasizing on reducing risk, bridging valuation gaps and do not want to give up on investment opportunities in companies where equity deals are not available.
Typical instruments of structured deals include non-convertible debentures, high-yield structured debt and compulsory convertible debentures (CCDs).
“A structured deal offers flexibility to both the investor and the company. PE investors want safety in return of parting with large amounts. For promoters, many a times they get an option of buying back the debt and not dilute stake," said Harish H.V., partner, India leadership team at Grant Thornton, a consulting firm.
KKR said it is looking forward to working in partnership with the Apollo. “KKR has a history of successful investments in the healthcare sector globally, including in market-leading businesses like Hospital Corporation of America and Alliance Boots, and we are very excited with the opportunity to partner with Dr Reddy and family who have created one of India’s finest healthcare businesses," KKR India CEO Sanjay Nayar said on the development.
Last month, Prathap C. Reddy, chairman of the hospital chain, confirmed that he was in talks with KKR. He said at the time that the transaction would be structured so as to ensure the promoters did not have to dilute too much of their holding. Currently, Reddy’s family owns a 34% stake in Apollo Hospitals of which 18.42% is held through PCR and if KKR chooses the option to convert the debentures after five years, the private equity firm will end up with a 4-5% stake. PCR will use some of the money to retire debt on its books. Mint couldn’t immediately ascertain the amount of debt on the company’s books.
Interestingly, the deal was struck by KKR’s alternative credit business in India, a possible indication that private equity companies are beginning to use innovative ways (including debt) to invest in companies in the country.
Shares of Apollo Hospitals fell 12.05% to ₹ 878.95 on BSE, while the Sensex lost 0.55% to 20,570.28 points.
An analyst said shareholders tend to get jittery with structures that involve converting debentures into equity shares.
“This indicates two things to a typical shareholder—increase in debt right away and dilution of stake in the long term, which could lower earning on the per share basis and hence an impact on the stock price," said this analyst, who did not wish to be identified, as he tracks the company.