Kotak Private Equity may be infusing Rs 150 crore into Manipal Education and Medical Group (MEMG), the flagship of the TMA Pai family-led Manipal Group, as part of the latter's capital raising plans for its healthcare arm.
MEMG is raising funds to buy back IDFC’s stake in Manipal Health Systems (MHS), the hospital network of the group, as well as for growth capital requirements, multiple sources familiar with the development said.
Without disclosing from where it was raising funds, MEMG Managing Director and CEO Ranjan Pai said, the holding company was investing Rs 235 crore, a part of which will be used to buy out IDFC Private Equity’s stake and the remaining for future growth plans for hospital operations. The parent company is also understood to be in talks with commercial banks to raise debt.
In 2006, IDFC had invested Rs 90 crore for an estimated 21% stake in MHS, which ranks as the third largest private hospital network in the country.
"We are also in discussion with some PE firms (Kotak being one of them) for raising further equity for any acquisition opportunity that may come by in the future.," Mr Pai told VCCircle, in an emailed response.
Banking sources said, Kotak was in advanced stages of fund infusion into MEMG through convertible debt instruments. Kotak Private Equity along with Kotak Realty Fund will be cutting a joint deal as the latter treats hospitals as part of revenue earning real estate asset class, sources added. The structured financing deal would see Kotak entities netting a fixed return on investment without converting into equity in normal circumstances.
MHS, with a network of 17 hospitals, has over 4,000 beds spread across 10 locations, mostly in southern India. It also has hospitals under development in New Delhi and in Penang in Malaysia. With over 8,500 beds across 50 hospitals, Apollo Hospital Enterprises, is India's largest private hospital network even though its leadership has been challenged by Fortis Healthcare through an acquisition-led growth strategy.
Media reports in the past have suggested that MHS has been looking at raising a large round of growth capital, probably up to $100 million, to fast-track its expansion in a very dynamic industry. In 2008, The Economic Times had reported that MHS was in discussions with Bain Capital and Arcapita for fund raising after calling off a strategic deal with Singapore’s Parkway Holdings. With markets recovering, MHS is hitting the market for significant a fund-raising once again.
A recent Yes Bank and Assocham report said, India's healthcare market, growing at 23%, could touch $77 billion by 2012. Separately, it is estimated that the country might require $14 billion investments to double the bed density to two per 1000 population by 2025.
The group has been investor-savvy and has clinched a few private equity transactions for its various group arms, with the latest significant one being Premji Invest’s $43 million investment into Manipal Universal Learning.