Malaysian hospital chain IHH leads race to acquire Singh brothers’ healthcare operations

| Mumbai, India | 23 May 2017 | Asia Samachar |
BROTHERS: Malvinder Singh and Shivinder Singh – PHOTO/ FORTIS ANNUAL REPORT

The world’s second-largest healthcare Group Integrated Healthcare Holdings (IHH) has emerged as the front runner for the healthcare assets of siblings Malvinder and Shivinder Singh of Religare, after the Malaysian hospital chain ended its decade-long association with Apollo Hospitals last week, reports Economic Times, quoting unnamed people with knowledge of the matter.

IHH, which operates the Parkway Pantai chain of hospitals, is competing with a private equity consortium of TPG and General Atlantic to acquire controlling stakes in both Fortis Healthcare and Fortis Malhar — which will also house SRL Diagnostics following a group restructuring exercise — valuing India’s second-largest hospital chain and its diagnostics arm at US$2.8 billion, the report said.

As promoters, Singh brothers currently hold 52.3% in Fortis, according to stock exchange notifications. Of this, 85.6% is pledged. The company’s market cap stands at Rs 10,534 crore. The promoters will dilute minimum 26% and cede management control. The acquisition is likely to trigger an open offer for an additional 25% equity.

SRL, which claims to be India’s largest diagnostics chain, is being spun off from Fortis into its existing listed subsidiary Fortis Malhar and renamed SRL Diagnostics as part of a major reorganisation. The Singh brothers, the majority shareholders in Fortis, will control 40.6% in the diagnostics arm when it’s listed, according to an exchange filing last August. Subsequently, the Group’s hospital business will be housed under the listed company Fortis Healthcare. The entire process is expected to be completed by the middle of 2017.

With a control premium, the deal could value Fortis at around Rs 11,000-11,500 crore. Additionally, SRL could be valued at Rs 4,500-5,000 crore, said the officials, making it the largest M&A in Indian healthcare. However, if a deal gets consummated prior to the reorganisation, then the recast may not go through, said officials in the know on condition of anonymity as the talks are still in the private domain, the report added.

“IHH is always looking at various value-accretive opportunities. However, it is not appropriate for us to comment on specific transactions and we will update the market if there are any material developments,” the report quoted a company spokesperson. A spokesperson of RHC Holding Pvt Ltd, one of the promoter holding companies of Fortis, declined to comment on speculation. HSBC is the financial advisor to IHH.

The report, entitled ‘IHH leads race to acquire Singh brothers’ healthcare operations’, appeared yesterday (Economic Times, 22 May 2017). See here.


The transaction will involve a combination of primary and secondary share sales. The proceeds will help deleverage the balance sheet and also delist Fortis Hospital Trust Singapore. The company had planned an asset-light model by placing its businesses under a trust, which raised Rs 2,260 crore on listing in October 2012. Fortis is the sponsor of the Religare Health Trust (RHT) with a 29.6% stake. However, the transfer of assets to RHT has been putting pressure on the margins due to a hefty services fee. Last October, Fortis Healthcare completed its acquisition of 51% economic interest in Fortis Hospotel, a subsidiary of RHT. The final structure of the transaction is still being worked out and the negotiations are expected to conclude by June end.

ET had reported on May 4 that IHH and TPG-GA were the two strongest contenders for the Fortis takeover. “Compared to the other potential suitors like Bain and KKR, it’s now a clear two-horse race between the Malaysia strategic (IHH) and the TPG-GA consortium. But the Apollo divestment paves the way for IHH to now aggressively pursue Fortis,” said a senior legal source aware of developments. “If they succeed they will become the predominant player with opportunities in green field and brownfield expansions.”

There is no exclusivity agreement signed with the bidders yet. Last December, TPG on its own had exclusive negotiations with the Singh brothers but those talks did not fructify then following which other candidates joined the race.

The bidders are keenly watching if the courts will come in the way of the recent asset sales by Religare. Japanese pharma giant Daiichi Sankyo had informed the Delhi High Court that the insurance sale violated an order requiring permission to part with unencumbered assets. Last year, a Singapore arbitration panel had directed the Singh brothers to pay Daiichi Sankyo Rs 2,500 crore for withholding critical information while selling Ranbaxy to it a decade ago. RHC officials insist that the court order in the Daiichi case is only applicable in respect of unencumbered assets of the parties to the litigation, namely RHC Holding Pvt Ltd and Oscar Investments Ltd and the operating listed entities and other subsidiaries of the group, including Fortis and SRL, are not party to the litigation.

The Parkway Pantai, which operates in Singapore, Malaysia, China, Brunei and the UAE, has a strong presence in India.

It entered the country in 2015 buying 51% in Hyderabad-based Continental Hospitals for Rs 300 crore and 74% in Global Hospitals, also based in Hyderabad, for Rs 1,280 crore. The Singh brothers have suggested combining IHH’s India investments and merging them with Fortis, said officials.

Interestingly, IHH and Fortis competed aggressively after the Singh brothers unsuccessfully tried to acquire Parkway some years ago. IHH considers India its fourth home market after Malaysia, Singapore and Turkey.

Khazanah, the Malaysian sovereign wealth fund, had initially picked up a stake in Apollo Hospitals for Rs 293 crore in 2005 through a secondary deal and later hiked its holding in 2008. It is estimated to have spent around Rs 400 crore to buy the stake. Subsequently, IHH Healthcare had picked up close to an 11% stake in Apollo Hospitals in 2011 through an inter-se transfer, after which IHH Healthcare was listed on the Bursa Malaysia and the Singapore Exchange.

However, IHH Healthcare’s independent acquisitions in India didn’t seem to go sit too well with the Apollo Hospitals promoters. In March 2017, IHH made a partial exit, selling a little over 6% in the market. Following Thursday’s sale, IHH ended its 12-year association with Apollo after netting Rs 1,900 crore from the investment. The company said it will use the proceeds to fund the working capital needs of the Group.


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