Does Fortis Healthcare restructuring hint at possible sale?


Moneycontrol News

Fortis Healthcare‘s decision to buy the entire India portfolio of assets held by Singapore listed Religare Health Trust (RHT) aimed at simplifying the current structure hints at speeding up of possible stake sale.

As per the definitive agreement – Fortis has agreed to buy the Indian portfolio of assets at an enterprise value of Rs 4,650 crore. A debt to the tune of Rs 1,152 crore of RHT will be transferred to Fortis balance sheet, as part of the deal.

Fortis said the proposed acquisition is aimed at consolidating the entire Indian portfolio.

“With the unwinding of the current structure, it would also make it easier for investors and other stakeholders to better understand the Company’s business and financial performance,” Fortis said in a statement.

The company said it has been in active dialogue with financial and strategic investors to raise funds.

Standard Chartered Bank is acting as the financial advisor of the company.

RHT is the holding company of the entire Indian asset portfolio that includes 12 hospitals, 4 greenfield and 2 operating hospitals. Fortis operates the assets by paying service fees to RHT.

Fortis said it will save Rs 270 crore service fee it pays to RHT post this transaction.

Fortis owns a 29.76 percent stake in RHT. Post the asset sale Fortis will get around Rs 1,000 crore in dividend. So the net cash that Fortis will be paying for the acquisition comes to around Rs 3600 crore.

Brokerage house Motilal Oswal, in its November report, said Fortis may need Rs 2,000 crore in form of debt and Rs 1,600 crore of equity to fund this transaction.

Fortis promoters Malvinder Singh and Shivinder Singh – referred as Singh brothers hold 34.43 percent stake in the hospital chain directly and indirectly, the rest is held by institutional investors, and minority shareholders.

Analysts tracking the company say the potential investors may have been put-off by the complex nature of Fortis transactions.

“The more complex the structure is, the less the clarity – the investors have,” said Amit Tandon, Managing Director of IiAS, a Mumbai-based institution investor advisory services firm to Moneycontrol.

Tandon said the company should restore credibility that took a hit after recent events – before going ahead with any such deal.

Another analyst tracking the company for a brokerage house said the company may need equity infusion to fund the RHT deal.

“If they are able raise equity they’ll be able to do, if they are not able to raise then they’ll not be able to do,” said the above analyst who tracks the company on condition of anonymity citing his company’s policy.

Raising funds may not be that easy at the moment, pointed out ICRA downgrading the company’s loans yesterday.

“The stay imposed by Honourable Supreme Court of India is likely to delay the deleveraging process and will adversely impact promoter group’s already stretched liquidity position,” ICRA said point out the credit weakness for the company.

“Further, majority of the assets of the promoters are already encumbered,” the rating agency said.

Fortis is yet to declare its Q2 results.  The company sought extension till February 28 to declare second and third quarter results of FY18 as the statutory auditors informed company that the audit process may not be complete before the stipulated date of the board meeting.

Fortis is one of India’s largest healthcare services provider in the country, with 4600 beds spread across 45 healthcare facilities including projects under development and over 346 diagnostic centres.

Troubles surfaced at Fortis after the company indicated that considerable funds were transferred to third parties, which were later classified as promoter entities and the current outstanding amount towards such entities is Rs 473 crore.

Fortis said the same loans are adequately secured and added that the promoters have agreed to repay the loan by the end of June this year.

Last week Fortis two promoter directors Malvinder Singh and Shivinder Singh tendered resignations to the board citing insulating the company from the promoters’ ongoing legal fight which was hurting the performance.

Last month, the Delhi High Court had allowed Japanese pharma firm Daiichi Sankyo to collect Rs 3,500 crore (USD 500 million) award money from the Singh brothers.

A Singaporean tribunal had adjudged in favour of Daiichi that the Singh brothers had concealed information about Ranbaxy regulatory problems with US FDA, while selling its shares.

Moneycontrol has earlier reported that Securities and Exchange Board of India (SEBI) and stock exchanges may soon issue notices to the company to find out if there is any digression with respect to related party transactions.