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| Fortis readies to battle Khazanah |
| Joe C Mathew / Mumbai May 29, 2010, 00:22 IST |
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Fortis Healthcare, which runs the country’s largest private hospital chain, is likely to counter Malaysian investment fund Khazanah’s bid to acquire majority control of Parkway Holdings, Asia’s largest healthcare chain.
Fortis is controlled by the Singh brothers, Malvinder and Shivinder. It could unveil its final strategy in a week to 10 days, sources said, while ruling out the possibility of the company selling its stake to the fund.
Yesterday, Khazanah, which holds a 23.9 per cent stake in Parkway through Integrated Healthcare Holdings, had offered S$3.78 a share (around Rs 126), a 25.2 per cent premium to the market price, to increase its stake beyond 51 per cent.
Analysts widely expected Fortis to counter the Khazanah offer, given that the Indian healthcare group has the financial muscle to do it. While various funding options are still being explored, Fortis today said that it would raise Rs 1,750 crore through warrants or preferential shares by June. As a result, the company’s debt-equity ratio will fall to 0.65:1 from the present 2.2:1, Fortis Chief Financial Officer Yogesh Sarin told reporters. Analysts see a low debt level as a positive for Fortis to raise more resources.
The company, however, refused to comment on the Khazanah bid or its own strategy to counter it. It is learnt that Fortis is also in talks with the Malaysian investment fund, that is looking to expand its overseas footprint. From all available indications, the Singhs are going to give the Malaysian fund a tough fight till the end.
There are multiple options available before the company, including the possibility of the Singh family, which raised over Rs 10,000 crore by selling its stake in Ranbaxy two years ago, pumping in funds to counter the bid, a source said.
What has surprised industry players is the timing of the Khazanah move. The fund had the option to increase its stake in Parkway before Fortis entered the scene two months ago. “It is intriguing that Khazanah should do it now, when it always had the option to raise its stake earlier,” said an industry source.
In March, Fortis acquired a 23.9 per cent stake in Parkway for around Rs 3,000 crore, to emerge as the largest shareholder. Since then, the company has increased its shareholding to 25.3 per cent.
The proceeds from the warrant conversion, part of the original Parkway acquisition plan, will be used to reduce debt, estimated at Rs 4,200 crore at the end of March. By June, the debt is likely to come down to around Rs 2,300 crore, Fortis’ CFO said. Fortis Healthcare had recently raised $100 million through a foreign currency convertible bond issue.
“As of now, we are not planning to raise any further funds in the near future,” Fortis CEO Bhavdeep Singh told Business Standard over the phone.
Analysts said the company will need to raise more resources, which may put some burden on Fortis. “Fortis will require an additional Rs 3,500 crore to counter the Khazanah offer. They will have to raise funds through a combination of debt and equity, like preferential allotment. The burden on Fortis is sure to increase, if they decide to counter the offer,” said Ranjit Kapadia, vice-president, HDFC Securities.
“It will be a difficult battle for the Singhs and this can evolve like the Arcelor-Mittal takeover battle, which went on for months. The momentum is now more tilted towards the fund, as there will be limitation for the Singhs on borrowing money from the market, whereas Khazanah is a sovereign fund, which gets funds at lower cost. They also seem serious on taking control of Parkways and this will be an all-out corporate battle. But, what is intriguing is, did Fortis and Khazanah discuss the future before Fortis bought its stake? Or, did things turn sour suddenly?” asked Sujay Shetty, head of life sciences, at consulting firm PricewaterhouseCoopers.
What may augur well for Khazanah is an improvement in relations between Malaysia and Singapore in recent months. Even today, Khazanah Managing Director Azman Mokhtar talked about the co-operation between agencies from the two countries on building a rapid transit link and joint land development, where Temasek, Singapore’s investment fund, is a partner.
For the Singhs, Government of Singapore Investment Corporation’s shareholding in Fortis could come handy.
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