GIC Special Investments--the private equity arm of Singapore Government's GIC—has announced that it will defer its Rs 380-crore investment in Fortis Healthcare. This move, interestingly, comes at a time when Fortis is busy raising funds to prepare for a possible takeover battle with Malaysia's sovereign investor Khazanah over the Parkway Holdings asset.

Fortis has informed the exchanges today that "GIC would like to consider participating in the larger fund raising by the Company as per the resolution passed in the Board Meeting dated June 09, 2010."

GIC Special Investments was planning a fresh investment of Rs 380 crore in Fortis by subscribing 22.35 million shares on a preferential basis at Rs 170 each. The share price of Fortis fell by nearly 2.5% in morning trade to Rs 152.40 before recovering to Rs 154.4 levels.

"GIC remains committed to Fortis through our substantial investment in Fortis' convertible bonds. Like any investor, we constantly review our  investments and will evaluate participating in the larger fund raising by the company as per the resolution passed in the Board Meeting dated June 9, 2010 and defer the preferential investment until such time," said GIC in a statement.

The latest development comes amidst fears that geopolitical compulsions could dominate the takeover battle for Parkway, which is a strategic healthcare asset in the region. Sources said, Khazanah may have raised concerns with the Singapore government on moves by Fortis to frustrate its offer to raise stake in the hospital chain to 51%, up from 24% currently. The relationship between Malaysia and Singapore are probably at their best in recent history with Khazanah and Singapore's sovereign funds collaborating on several strategic projects.

"The statement doesn't necessarily mean GIC is committed to the cause of Fortis," said Ranjit Kapadia, an analyst at Mumbai-based HDFC Securities was quoted in a Reuters report. "GIC may not be willing to pay a premium of 11% on the current market price of Fortis and that may have led to the deferment of allotment."

The board of Fortis announced fresh fund-raising plans as a prelude to a possible takeover battle for Singapore-based Parkway Holdings on June 9. Under this, Fortis plans to raise an aggregate amount of up to Rs 2,750 crore ($575 million) through issue of fresh securities. The board also approved increasing the borrowing limit to Rs 6,000 crore ($1.3 billion).

Malaysian sovereign wealth fund Khazanah's offer to hike stake in Parkway came at S$3.78 per share. Khazanah will pay approximately S$1.18 billion (US$835 million) to hike its shareholding to 51.5% up from 24% currently. In March this year, Fortis Healthcare paid US$685 million to acquire TPG's 23.9% stake along with management duties of the hospital chain with presence in China, Malaysia, Brunei and Singapore.

Morgan Stanley, which was appointed as independent advisor to Parkway's board on the Khazanah offer, recently advised the board that the S$3.78-per-share offer by the Malaysian fund is reasonable but not compelling. The report also said that Fortis currently controls seven of the board's votes. Fortis has four directors on the 13-strong board (which exclude alternates)  and also has a formal arrangement with three other directors which gives Fortis the right to direct how they vote at shareholder and director meetings.

These directors are Parkway vice-chairman Richard Seow, executive vice-chairman Lim Cheok Peng and CEO Tan See Leng. Interestingly, these directors also stand to get economic benefits based on certain formulas if Fortis sells more than 10% of its stake in Parkway during the agreement period. The directors had also agreed not to dispose off or transfer any part of their shareholding during the term of agreement which would result in them holding less than 100,000 shares.

It has also been pointed out that these directors had a similar arrangement with private equity major TPG, which was a financial investor, as compared to a strategic investor like Fortis which is looking to create a healthcare empire across emerging markets.

Interestingly, Morgan Stanley's arm FrontPoint Management LLP has accumulated around 4.9 lakh shares for a "discretionary investment client". One banker, who did not wish to be named, said, Morgan Stanley's accumulation of outstanding shares has the potential to foil Khazanah's offer without Fortis actually having to make any expensive payout for the entire shareholding of Parkway. This would have seen Fortis being pushed into the leveraged zone, especially as its operations back home are still in growth phase and need capital.

"In context, it is entirely possible that Khazanah might have expressed reservations on some of the recent developments at Parkway," he said. The share prices of Parkway, which was said to be adequately valued before the takeover battle, have run up and the bidder may end up over-paying. It is also feared that once the bidding stops, the share price of Parkway could possibly collapse.

On the geo-political front, both Singapore and Malaysia have agreed to resolve disputes over land

and water, which had been going on for the past 20 years. Both also agreed to develop the Malayan Railway land in a joint venture between Khazanah and Singapore state investor Temasek.

For the Singh duo, the challenge would now be in navigating both boardroom and local sensibilities. 

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