The Fortis saga: All you wanted to know about the twists and turns

May 22 will seal the fate of company loyalist Brian Tempest and decide who gains control of the hospital and other businesses once owned by Malvinder and Shivinder

Tomorrow, May 22, will see an extraordinary general meeting called by minority shareholders of Fortis Healthcare to seek the ouster of one board member, since three others -- Harpal Singh, father-in-law of Malvinder Mohan Singh, Sabina Vaisoha and Lt Gen Tejinder Singh Shergill -- have already resigned. Only Brian Tempest, a former Ranbaxy hand and known company loyalist, remains.  

It is difficult to disassociate the crumbling fortunes of the Singh brothers from the Hospital business they set up in 2002, though they are no longer part of the management and board and have less than one per cent share currently. 

The company that set up a blistering pace is facing a burn out. Cash-strapped, it is looking for investment. Among the many problems it faces is lack of liquidity, stiffened credit lines and a complex holding structure that requires multiple payments (including the proposed Rs 46.5 billion payment to Religare Health Trust). 

Why is Fortis up for sale?

With greenfield projects already commissioned, Fortis set up one hospital after another. In 2005, it bought Escorts Hospitals group  for Rs 5.9 billion in an all-cash deal. In 2009, it brought Wockhardt Hospitals for Rs 9.1 billion crore via rights issue, internal accruals and debt. Bitten by the globalisation bug, it began exploring Southeast Asia, where a string-of-pearls strategy led to asset acquisitions in Vietnam, Malaysia, Australia, Hong Kong and a bitterly-fought battle with Khazanah in Singapore for Parkway all between 2011-2013.  

However, the  purchases were financed by debt and became unsustainable for the company. The management strategy, where one central entity would manage all its businesses didn't work. Within two years, it exited Hong Kong, Vietnam (Fortis Hoan My Corporation) and Australia (Dental Corporation). 

At the end of 2012-13, Fortis had a total debt of Rs 64.7 billion, while cash and bank balances were Rs 5.1 billion and investments were Rs 11.9 billion. In the June quarter, its interest cost was Rs one billion, while its Ebitda was Rs 742 million.  
 

The tide was turning and war clouds loomed over the brother's heads with a case filed in 2012 by Daiichi Sankyo in Singapore court of arbitration for breach of faith in the sale of Ranbaxy. In 2016, the Singapore High Court ruled in Daiichi's favour, awarding it Rs 35 billion as compensation. Daiichi moved swiftly to enforce the order and filed an application in Delhi High Court, for a stay on sale of all their businesses till its award was handed over. In January this year, the Singh brothers lost the suit as the counter claim was dismissed by the High Court. Its special leave petition wasn't admitted in the Supreme Court either.  

The Daiichi saga cast its shadow and brought the brother's Financial and Healthcare businesses under scrutiny. 

Shivinder Mohan Singh, credited with leading the hospital business, gave up active charge in 2015 and moved on to join a spiritual sect.

With Daiichi slapping stays and affidavits, the company's credit rating went down, making fresh capital expensive. Today with 34 per cent of their shareholding being regarded as collateral by the banks, the brothers hold 11,500 shares each in individual capacities and the holding of the entire promoter group is 0.77 per cent. 

Fire fighting

Bhavdeep Singh, CEO, who had worked with Fortis between 2009-2011 had been brought in once again in 2015. His brief: find an investor and trim cost. The next six months saw a veritable bloodbath with close to 400 people axed including doctors, senior management and even peripheral staff. In an interview at the time, Bhavdeep Singh categorically stated Fortis was looking for an investor.  There was no question of a sellout. On the pink slips being handed out, he claimed it was mere rationalisation and streamlining of operations.

Meanwhile, changing business environment and government price controls squeezed margins of the corporate healthcare sector. 

Whose shareholding is being sold?

Investor Shareholding (%) Promoters  0.77    ICICI Prudential 1.10 Eight private investors and funds  25.13 Yes Bank 15.14 Axis Bank 1.76 Gopikishan Damani  1.87 The rest is held by FII and individual investors

In 2017, rumors first surfaced that Fortis was looking for an investor.  IHH was apparently closing the deal at 250 a share. Others interested parties included TPG, GE Atlantic, KKR and Bain. 

As Daiichi got wind of the investment, and killed the deal by seeking stay on the sale till the settlement was final. 

How the money will be spent

Besides offering working capital and servicing loans, a major portion of the investment would go towards buying out Fortis hospitals which are owned by the RHT Trust. In an email response, the company said, “A majority of the investment would be utilised for the RHT acquisition and the balance would be decided closer to the time of final approvals. Fortis Healthcare as a sponsor holds 30 per cent in RHT Health Trust. It is expected to receive back approximately Rs 1,000 crore (Rs 10 billion) as its share of dividend from the sale proceeds received by the trust."

The possible suitors

When Fortis announced the sale of its hospital business in March end to TPG- Manipal combine, there were plenty of reservations. The price undervalued Fortis healthcare tremendously. Given that previous year, it was expected to sell to IHH Berhad at Rs 250, for the new buyers the depressed price was a steal. 

The Munjal-Burman combine's revised offer proposed to invest Rs 18 billion directly, without any due diligence. Eight billion rupees will be invested through preferential issue of equity shares and the balance through preferential issue of warrants, based on FHL's current business and financial position. The offer letter also proposed a strategic sale of SRL Diagnostics after divesting FHL's stake in it. 

The Manipal-TPG combine upped the ante with a revised bid valued at Rs 175 per share. The consortium will be investing around Rs 33 billion in the deal for FHL, of which Rs 21 billion will be invested in the company and Rs 12 billion will be used to buy 30.93 per cent stake held by private equity firms in SRL Diagnostics. Also, as per the terms of the latest offer, Manipal Hospitals will merge with FHL, as against the earlier proposal to demerge Fortis' hospitals business and merge it with Manipal Hospitals.

The promoters of  Malaysian hospital chain IHH Berhad also upped their offer for FHL by 9 per cent. On offer was an immediate equity infusion of Rs 6.5 billion at a valuation of Rs 175 a share, up from its previous offer at Rs 160 per share, along with a subsequent equity infusion of Rs 33.5 billion, subject to satisfactory due diligence. "The due diligence is not intended to be a price adjustment mechanism for the subsequent equity infusion.” 

KKR-backed Radiant Life Care made a binding offer to purchase the Fortis hospital in Mulund, Mumbai, "without due diligence and as a going concern at an enterprise valuation of Rs 12 billion as the first step". The second part of the offer was non-binding at this stage and subject to due diligence. It proposed spinning off SRL Diagnostics "for the time being so that FHL can run an independent competitive sale process". Radiant further proposed a demerger of the hospital business from FHL into a new company followed by an all-cash open offer to shareholders of the new entity at a price of Rs 126 per share. The offer was subject to Radiant being able to acquire 26 per cent or more shares in the new company. "In order to fund RHT stake acquisition, we propose a rights issue offer by NewCo [new entity]. The entire rights offer amount would be back-stopped by Radiant," the offer letter added.

Fosun, with a non-binding offer of investing $350 million, may or may not go the whole hog.

What  is RHPL?

RHPL is a closely-held investment company owned by the Singh brothers. The plan for any bidder of the group is to buy Fortis Hospitals from Singapore exchange-listed Religare Health Trust (RHT) and transfer it to Fortis Healthcare's balance sheet.

Yet to unfold

Now that the directors have resigned, tomorrow's meeting is expected to consider the winning bid. The Munjal-Burman bid isn't home yet.

Earlier, minority shareholders East Bridge Capital and National Westminister had suggested the appointment of Suvalaxmi Chakraborty, Ravi Rajagopal and Indrajit Banerjee as independent directors. An expert advisory Committee (EAC) was formed with Deepak Kapoor and Lalit Bhasin to advice the board to examine the offers and give the board their recommendation. 

The proxy shareholders oppose the deal because they do not agree with the board's plan to consider only binding bids. There are five bids -- binding and non-binding -- and they want every bid considered. 

Backroom parleys are on with the proxy shareholders. However the veil will only lift on May 22 to show which way does the wind blows.