Fortis Healthcare India Ltd, which runs the country’s second largest hospital chain, is planning to strike a deal with private equity (PE) investors. Ahead of that, the promoters will sell part of their stake in the company through the stock auction route.
The move will help the Singh brothers, promoters of Fortis, reduce their stake in the company to levels prescribed by the stock market regulator for listed firms, and also provide Fortis with money to retire some of its debt.
The development comes barely six months after the Singhs—Malvinder and Shivinder—sold their privately held international hospital business to Fortis Healthcare.
Two people familiar with the development, a banker and a PE investor, said Fortis Healthcare is in talks with the Carlyle Group and TPG Capital India to sell 15-20%. Neither wished to be identified.
Shivinder Mohan Singh, executive vice-chairman of Fortis Healthcare, and one of the promoters, declined to comment.
Spokespersons for TPG and Carlyle said their policies prevented them from commenting on “market speculation”.
The spokesperson of the hospital chain denied that the promoters were looking to divest and said “there is no truth whatsoever in this information”.
“Fortis Healthcare is in the process of raising around $250 million (around Rs. 1,272.50 crore) through a combination of equity and convertible debt instruments from PE firms,” said one of the persons cited above.
“A two-stage deal is being considered—the promoters will divest about 6.5% stake through the stock auction route and this will be followed by the private placement of 15-20% stake to PE firms at a negotiated price,” the person said.
The second person said the deal could be finalized in the next two weeks.
The sale of 6.5% stake by promoters will increase the public shareholding to 25%, the minimum threshold listed firms need to achieve by June 2013, according to the stock market regulator.
The capital market regulator introduced the auction route in February to help firms dilute promoters’ stakes to 75%.
After the two transactions, the promoters’ holding in Fortis will come down to below 60% from the current 81.48%.
“The private placement of shares will take place after auction of promoters’ stake. Fortis is currently negotiating the placement price,” the first person said. “If the negotiations get stuck over differences in valuation, the auction will also be put on hold.”
According to him, the price at which Fortis Healthcare will divest its stake to PE firms could range from Rs. 110 to Rs. 120 a share, at a premium to the current price. Shares of Fortis Healthcare closed at Rs. 100.05 apiece on BSE on Wednesday, down 1.96%, even as the exchange’s bellwether equity index lost 0.79% to close at 17,121.62 points.
In September, Fortis Healthcare acquired Fortis Healthcare International Pte Ltd from RHC Financial Services Mauritius Ltd, owned by the Singh brothers, for $665 million. The acquisition was completed in January. That transaction was handled by Religare Capital Markets, the investment banking arm of Religare Enterprise Ltd, also promoted by the Singh family.
This deal, too, is being handled by the investment banking arm of Religare Enterprise.
Meanwhile, Fortis Healthcare has also initiated the process of hiving off its non-core businesses and related assets into a separate company, which will be listed as a business trust on the Singapore Exchange.
The company plans to raise around $300 million through the Singapore listing by June.
Funds mobilized from that sale and the issue of fresh equity to PE firms will be used to bring down the company’s debt. Fortis had about Rs. 1,750 crore debt on its books as on 31 December.
“The company has been on the lookout for funding for quite some time. It wants to repay the debt. While it is making profit, it’s not enough to run the company, as well as pay back the loans,” said a third person, a PE investor, who also did not wish to be identified.
Fortis Healthcare posted a 28% drop in consolidated profit in the December quarter, mainly due to losses from its diagnostic business and investments made in new projects.
Net profit fell to Rs. 25.66 crore in the fiscal third quarter from Rs. 35.67 crore in the year-ago period, even as revenue rose 63% to Rs. 604.5 crore led by the hospital segment.
Its diagnostic business, Super Religare Laboratories Ltd, made a loss of Rs. 7.7 crore in the quarter. The diagnostic arm of the group was bought by Fortis Healthcare a year ago.
Source: Livemint