Malaysia's IHH Healthcare Bhd, Asia's largest hospital operator by stock market value, has inked a deal to buy majority stake in Ravindranath GE Medical Associates Pvt Ltd, which runs a super-specialty care and multi-organ transplantation hospital chain under the Global Hospitals brand.
A Singapore-based arm of IHH has entered into definitive agreements with Global Hospitals and its founder K Ravindranath besides private investors PE firm Everstone Capital, World Bank's private investment unit IFC and broking firm Anand Rathi Financial Services among other shareholders to buy 73.4 per cent stake for Rs 1,280 crore ($193.5 million), it said on Friday.
IHH did not disclose if it is buying all the stake from some of the existing shareholders or if they are retaining some stake. It said it will use Rs 265 crore from the deal amount to fund the hospital chain’s capex requirements and to optimise its current cost of borrowing.
The deal values the company at Rs 1,744 crore ($264 million).
IHH said the money will be paid in cash, and is subject to customary adjustments on changes in working capital and debt which will only be determined upon completion of the proposed acquisition.
IHH plans to consolidate all Global Hospitals’ facilities under IHH’s 'Gleneagles' brand.
Global Hospitals was founded by Ravindranath in Hyderabad in 1998. A specialist in gastroenterology and laparoscopic surgery, Ravindranath has more than three decades of experience in the healthcare sector.
Besides its key hospitals, it operates telemedicine centres at seven locations in India, including three in low-income states in the east and the north-east where local tertiary care access is limited.
Global Hospitals operates a chain of tertiary/quaternary care hospitals having facilities across Hyderabad, Chennai, Bangalore and Mumbai with approximately 1,100 operational beds in total. It specialises in gastroenterology, hepatobiliary diseases and neurosciences and runs amongst the largest multi-organ transplant programmes in India.
It also has two subsidiaries: Centre for Digestive and Kidney Diseases (India) Pvt Ltd, where it owns 64.97 per cent stake and Global Clinical Research Services Pvt Ltd (99.68 per cent stake).
The company had roped in Everstone as a PE investor eight years ago. Everstone, which had picked a significant minority stake in Global Hospitals with a total investment of around $33 million in tranches during 2007-09, according to VCCEdge, the data research unit of VCCircle, has been looking at an exit.
The PE firm is raising its new PE fund and had last December marked a first close at $301.5 million (approximately Rs 1,910 crore then). Everstone is looking to raise $650 million through the new fund with an upper limit of $700 million.
IFC, which has both direct investments in India as well as limited partner (LP) interest in a clutch of Indian private equity firms, has committed up to $50 million to the fund. IFC is also an investor in Global Hospitals.
Two years ago IFC had invested $25 million in the hospital chain through a combination of debt and equity.
Ravindranath, founder and chairman of Global Hospitals, said, “With IHH’s international experience and best-in-class knowhow, and our growth potential, we look forward to our enhanced ability to better meet the healthcare needs of Indians as well as international medical travellers.â€
For IHH, this is second deal in India in five months and it may face scrutiny from Indian competition watchdog as its previous deal was also in south India.
In April, it acquired 51 per cent equity stake in Hyderabad-based Continental Hospitals Ltd for about Rs 281 crore (approximately $45.4 million). Continental Hospitals has a 750-bed super specialty facility in Hyderabad.
This marked a rare move by an international hospital firm to buy majority stake in an Indian healthcare provider. The fragmented hospitals business in the country is dominated by domestic firms barring a few international healthcare chains like Aster DM Healthcare (whose Indian born founder built the business in the Middle East before expanding into India). This apart, Max Healthcare is co-promoted by South Africa's Life Healthcare and there are some MNCs in the single-specialty segment.
IHH's previous deal was also routed through a Singapore-based indirect subsidiary.
Tan See Leng, managing director and CEO of IHH, said, “This will be a game-changer for IHH in India. Together with our existing hospitals, the acquisition of Global Hospitals catapults us towards becoming one of the leading hospital groups in India. India has tremendous growth potential with its rapidly increasing demand for quality private healthcare.â€
IHH’s India portfolio comprises approximately 1,800 beds with potential to reach up to 4,000 beds in the next five years.
Meanwhile, the proposed acquisition of Global Hospitals marks an expansion of Malaysian sovereign wealth fund Khazanah's interest in Indian healthcare sector. Khazanah, which is a minority shareholder in top Indian hospital chain Apollo Hospitals Enterprise Ltd, is also the single largest shareholder of IHH.
IHH also has two existing JVs with Apollo running a hospital Apollo Gleneagles Hospital in Kolkata and Apollo Gleneagles PET-CT Centre in Hyderabad.
The company which has operations in China, Malaysia, Singapore, Australia and now India, had also inked a deal to buy a Singapore-based unit of India's Fortis Healthcare Ltd for $109 million. This deal, however, was nixed after Singapore's Competition Commission blocked the proposed deal as it would have affected competition in the country. IHH already has a large presence in the Southeast Asian nation through Parkway.
CIMB Securities (India) Pvt Ltd and ICICI Securities Ltd acted as the financial advisors to Global Hospitals for this acquisition. Veda Corporate Advisors also acted as a financial advisor to Global Hospitals and its shareholders. Global Hospitals' legal advisors for this acquisition are Khaitan & Co and J. Sagar Associates while tax advisors are Deloitte Haskins & Sells, EY (formerly Ernst & Young) and BMR Advisors.