Malaysia's IHH likely to get control of Fortis Healthcare this week

The Fortis stock has seen an erosion of 5.4% since the deal was announced in mid-July

Malaysian healthcare major IHH Healthcare Berhad is likely to take formal control of Fortis Healthcare Ltd (FHL) this week, sources claim.

The country’s fair trade regulator, Competition Commission of India, gave the go-ahead to the deal in October-end, paving the way for IHH to acquire a 31 per cent stake in India’s second-largest hospital and diagnostic chain through a fund infusion of Rs 40 billion.

Sources indicate the fund infusion through preferential allotment of shares (to its wholly owned subsidiary Northern TK Venture) is expected anytime now. This will give IHH roughly 31 per cent of FHL’s total voting equity share capital.

The Malaysian healthcare major will then undertake the mandatory open offer for 26 per cent shares at Rs 170 apiece. The open offer would be launched after the market regulator Sebi’s nod comes in.

Mails sent to both IHH and FHL remained unanswered till the time of going to press. If the open offer is fully subscribed, IHH will have 57 per cent shareholding of FHL. The transaction will result in a change of control of FHL. IHH, through NTKV, will be classified as the promoter of the company and have the powers to nominate directors, representing two-thirds of the board. The present Fortis board has three members — Ravi Rajagopal, Indrajit Bannerjee, and Suvalaxmi Chakraborty.

Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research Services, feels the Fortis board would be expanded. “There is a possibility that another three to four members would be inducted on the board.”

The Fortis stock has seen an erosion of 5.4 per cent since the deal was announced in mid-July. It closed at Rs 139.9 a piece on the BSE on Friday, November 9. Subramanian feels IHH might receive a fair response for the open offer given that the stock has seen erosion in the last few months. An analyst from another proxy advisory firm, however, felt some investors may want to stay invested as there is an expectation of a turnaround of FHL after IHH takes over.

Market sources indicate that most of the institutional investors (for example YES Bank) are likely to tender in their shares. These institutions have encumbered shares that they held as collaterals and the open offer gives them an opportunity for a fair exit from a stock that has underperformed.

Meanwhile, FHL has seen three high-level exits in recent times, the latest being its chief operating officer Bhavdeep Singh tendering in his resignation before the board. Earlier, FHL's chief financial officer Gagandeep Singh Bedi had quit in August and company secretary Rahul Ranjan quit in October.

What next?

• Funds to be used primarily to acquire RHT assets, pay vendors and dues
• IHH to launch open offer for another 26 per cent stake at Rs 170 apiece once Sebi nod for the same comes in
• Fortis board to be expanded, IHH to induct its members
• Fortis stock has seen erosion since the deal was announced, so open offer will see good response from shareholders, say proxy advisory firms