Fortis Healthcare Ltd plans to acquire the entire portfolio of Singapore-listed RHT Health Trust, five years after the hospital chain controlled by brothers Malvinder and Shivinder Singh spun off those assets into the business trust.
Fortis will purchase RHT Health’s assets for Rs 4,650 crore ($711 million), including debt of Rs 1,152 crore, it said in a stock-exchange filing. Fortis shares in Mumbai and RHT Health’s units on the Singapore Exchange surged.
The Indian company, which is already the controlling shareholder of RHT Health with a stake of 29.76%, said that it has signed a 60-day exclusivity pact with the trust’s manager to finalise the proposed acquisition.
The deal is aimed at consolidating the entire portfolio of RHT Health, comprising two hospitals, 12 clinics and four new clinics into Fortis. These hospitals and clinics are operated by RHT Health subsidiaries International Hospital Ltd, Fortis Health Management Ltd, Fortis Hospotel Ltd, Escorts Hearth and Super Speciality Hospital Ltd, and Hospitalia Eastern Pvt. Ltd. All these companies will become Fortis subsidiaries after the proposed acquisition is completed.
RHT Health had listed its units on the Singapore Exchange in 2012 after raising S$510.7 million ($419 million then) through a public offering. This was the largest IPO of a business trust sponsored by an Indian company in Singapore and the second-largest primary listing in Singapore that year.
The development is yet another change in strategy by the Singh brothers across their two main businesses—Fortis and financial services firm Religare Enterprises Ltd. Both Fortis and Religare had expanded through acquisitions, first in India and then overseas, starting 2008 but have sold most of those assets in recent years.
In fact, the brothers are now reportedly looking to sell Fortis itself and have previously held talks with potential investors including global private equity firms Bain Capital, KKR and TPG as well as Malaysia’s IHH Healthcare.
IHH Healthcare, however, said in June it was nowhere close to signing any deal in India. A report in The Economic Times said at the time that the deal had fallen through due to a court battle between the Singh brothers and Japanese drugmaker Daiichi Sankyo.
The Japanese company has been trying to stop the sale of Fortis on the grounds that it would hinder its ability to enforce an arbitration award against the brothers, who Daiichi alleges withheld crucial information when they had sold drugmaker Ranbaxy in 2007. The Delhi High Court in March this year restrained Fortis’ promoters from selling any assets without its permission.
A Bangalore-based healthcare analyst, who didn’t wish to be named, said the acquisition of RHT’s assets will strengthen the balance sheet of Fortis. The company is also talking to a couple of private equity funds and strategic investors and is in advanced stages of signing a deal. “A transaction for Fortis is imminent, though it could be as early as next month or may take another four months,” the analyst added.
Shares of Fortis gained as much as 11% on the BSE on Wednesday before closing 7.7% higher at Rs 140.45 apiece in a weak Mumbai market. RHT Health’s unit soared 19% on the Singapore Exchange and ended 10.5% up at S$0.895 apiece, giving it a market value of about S$723 million, or about US$533 million.
Fortis said that the proposed deal, which is subject to regulatory approvals, is likely to enhance value for its shareholders. As part of the transaction, the service fees that Fortis was paying will be eliminated, thereby improving its profitability.
The hospital chain that its net investment to buy RHT’s assets will decline as the trust will distribute a substantial part of the proceeds it will receive to its unit holders, including Fortis, after repaying its debt.
The cumulative expected incremental positive impact on earnings before interest, tax, depreciation and amortization will be around Rs 270 crore. The proposed acquisition of a 49% stake in Fortis Hospotel will help it save Rs 75 crore in interest costs, Fortis Healthcare said.
“This restructuring is a significant initiative and will integrate RHT’s entire India-based asset portfolio into Fortis while also improving the overall financial health of the business,” said Bhavdeep Singh, CEO, Fortis.
Fortis will fund the proposed transaction through a combination of equity, quasi-equity and debt. This means the acquisition could increase the level of debt on Fortis’ books. The company said it has an enabling resolution to raise up to Rs 5,000 crore and has been in talks with financial and strategic investors. It has named Standard Chartered as the financial adviser for the purpose.
For the financial year 2016-2017, Fortis reported an 8.7% jump in consolidated total income to Rs 4,574 crore. This includes revenue of Rs 4,508 crore from India operations and the remaining from international operations. Its net profit rose 15-fold to Rs 426 crore from Rs 28 crore because of a one-time gain.
As of March 31, 2017, the company had a network of 45 healthcare facilities (including projects under development), with about 4,800 operational beds and the potential to reach over 9,000 beds.