Fortis to sell stake in Hong Kong asset to Bupa for $355 mn

Continuing with its divestment strategy to reduce debt burden, Fortis, the country's largest hospital chain, has decided to sell stake in its Hong Kong asset, Quality Healthcare, to British medical services group Bupa for $355 million (about Rs 2,100 crore). The proceeds from the deal would be used to lower debt, the company announced Monday night.

Fortis Healthcare International Pte Ltd, a subsidiary of Fortis, would sell its 100 per cent stake in Altai Investments Ltd, the holding company for Quality Healthcare, the statement said. The deal is expected to be closed shortly.

The decision has come three years after Quality was bought by a vehicle owned by Fortis founders Malvinder Singh and Shivinder Singh in October 2010 for $190 million.

CUT-DEBT STRATEGY

• Value of the deal
  $355 mn
• Seller
  Fortis' Hong Kong subsidiary
• Buyer
  Bupa
• Amount paid to buy Quality Health in 2010
  $190 mn

After its acquisition of Wockhardt Hospital in 2009, Fortis had initially opted for an aggressive overseas acquisition strategy. But it has lately reversed its plans and has started focusing on reducing its debt burden by selling those assets. For instance, earlier this year, it even sold two of its largest overseas healthcare assets - in Vietnam and Australia. It had purchased the assets from one of the promoters' privately-held firms in 2011. The promoters, in turn, lent money to Fortis which had piled up debt on its books, to buy the assets. Fortis recently raised capital from IFC, StanChart PE and others to retire debt.

According to Fortis, the latest deal would improve its debt-equity ratio to 0.3, from 1.6 in September last year. JPMorgan and Religare Capital Markets are believed to have advised Fortis on the deal.

"The divestment also enables us to further strengthen our balance sheet and substantially improve our net debt-equity ratio, creating further room for growth," said Fortis Executive Chairman Malvinder Singh and Executive Vice-Chairman Shivinder Singh.

The company said it was further evaluating its portfolio of assets to ensure the right alignment and strategic fit, indicating there might be further divestment of overseas assets in the near future.

With divestment in various overseas assets over the past year, the company's revenue mix has also changed. While Fortis earlier had many international markers contributing to its consolidated revenue, the latest stake sale will mean that 95 per cent of the company's revenue will be accounted for by India. The management is hoping that with the shift in business strategy and reduction in debt, the domestic market will show a robust growth in upcoming quarters.

"The divestment clearly aligns our businesses with our stated priorities. We have taken a strategic decision to intensify our focus on our core hospital and diagnostic business in India with a clear path to profitability," the Singh brothers said.