Public-listed Fortis Healthcare Ltd is selling its 64 per cent stake in Australia’s Dental Corporation Holdings Ltd to Bupa Australia Health Pty Ltd for $286 million (A$270 million). The stake sale comes as Fortis has not been able to expand the model pan-Asia, keeping it limited to Australia and New Zealand.
The deal is expected to be completed by March 2013, subject to shareholders’ and regulatory approvals. The stake sold is held by Fortis Healthcare International Pte Ltd, a subsidiary of Fortis Healthcare.
The deal will bring Fortis closer to its net-debt-to-equity target ratio of 0.6x. Shares of Fortis jumped nearly 10 per cent in early trade on Monday and were trading at Rs 115.40 a unit on the BSE at 9.34 am, up 5.87 per cent.
Fortis acquired Dental Corporation in December 2010, initially buying 33 per cent stake for A$100 million. Fortis then increased its stake to 58 per cent for another A$100 million, paying a premium in January 2011. Assuming the average of previous two stake buys, the total cost of investment would come to $233 million or A$221 million. This would mean a profit of 23 per cent on its two-year-old investment.
Since acquiring Dental Corp, Fortis has expanded from 140 to 190 dental practices across Australia and New Zealand. Dental Corp had revenues of $358 million for the 12-month period ending June 2012.
“The model, however, has remained confined to the two countries and in spite of exploration and backing, has found limited acceptance in other Fortis geographies, as originally envisaged. The DC divestment is in line with Fortis’ strategic decision to focus on healthcare in Asia, including India, and on developing, staffing, operating and managing healthcare assets that cater to complex clinical work at the higher end of the medical delivery value spectrum,” said a company statement.
However, the debt has put a damper on the valuation of Fortis, putting it at a discount to Apollo Hospitals. “A debt-ridden balance sheet remains a major concern. The debt on the consolidated books stands at a staggering Rs 7,500 crore, increased by Rs 1,000 crore QoQ. Although the overall business remains EBITDA positive, leverage ratios still remain high with unprecedented debts,” an ICICI Securities report stated.
The sale of Dental Corp comes after Fortis listed Religare Health Trust, which houses the hospital services business of the healthcare firm, raising $419 million on the Singapore Exchange.
(Edited by Sanghamitra Mandal)