Promoters of India’s largest healthcare services company Apollo Hospitals Enterprise Ltd have raised Rs 550 crore ($89 million) from private equity major Kohlberg Kravis Roberts (KKR) and its affiliates for a privately held holding arm PCR Investments Ltd. The investment is in the form of a five-year callable security.
The Reddys—the promoter family of Apollo Hospitals—hold around 34.35 per cent stake in the company, of which 18.42 per cent stake is held by PCR Investments while the rest is with individual family members, as of September 30, 2013.
KKR will subscribe to the convertible debentures issued by Prathap Reddy’s holding company PCR Investments with an option to convert these into equity shares of listed flagship Apollo Hospitals at the end of five years. The promoters of the company will have the right to buy back these instruments at the end of two years, as per a public statement.
The current market capitalisation of Apollo Hospitals is around Rs 12,451 crore and given the current market value of shares held by PCR Investments, if KKR would convert its debentures into equity shares, it would hold around 4.5 per cent stake in Apollo Hospitals. It would concurrently bring down the promoters holding in the firm.
Around three-fourths of the shares held by PCR Investments in Apollo Hospitals are pledged with financial institutions. The firm said the entity would be using this capital to repay its existing debt.
“This transaction is the culmination of very involved deliberations with the clear intent of working together to create long-term value for the group and reflects our philosophy of partnering with players who have a long-term view and deep understanding of the healthcare space,” said Prathap C Reddy, chairman of Apollo Hospitals Enterprise.
“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. Our partnership with Dr Reddy and family has been initiated through our alternative credit business in India, and will look to pave the way for a much broader engagement between us,” said Sanjay Nayar, CEO of KKR India. Axis Capital was the advisor for the transaction.
With over 8,420 beds across 51 hospitals, 1,503 pharmacies, 92 primary care and diagnostic clinics and 100 telemedicine units across 10 countries, Apollo Hospitals is the largest healthcare services company in India and one of the top firms in the business in Asia.
It counts amongst its shareholders Malaysian sovereign wealth fund Khazanah, which is the single-largest institutional shareholder of the firm. In the past, Apollo Hospitals has also raised funding from Apax Partners which recently exited its investment.
For KKR, this is the second deal this year in India and the first ever in healthcare sector.
This is one of the many cases where KKR is investing in a company by initially offering debt finance. The private equity player has used a similar strategy for Analjit Singh’s Max India and Gautam Thapar’s Avantha Power and Infrastructure Ltd among others.
Other PE deals—including Bain Capital and GIC’s investment in Hero MotoCorp and Blackstone’s investment in Jagran Prakashan Ltd—are routed through a promoter holding entity. In the case of Hero MotoCorp, the PE investors have swapped their shares in the private holding arm with a stake in the listed flagship.
(Edited by Joby Puthuparampil Johnson)