IHH facing wrath of volatile Turkish lira

(From left) IHH Healthcare Bhd chief financial officer Low Soon Teck, chairman Dr Abu Bakar Suleiman and managing director and chief executive officer Dr Tan See Leng after the company’s AGM.

KUALA LUMPUR: IHH Healthcare Bhd, the second-largest public-listed hospital operator in the world is facing the wrath of the volatile Turkish lira.

The Khazanah Nasional Bhd-controlled company that has a substantial interest in Turkey wants to reduce its risk in the country due to the currency volatility of the lira against the US dollar and the spiralling medical inflation there.

IHH chief financial officer Low Soon Teck said they were actively engaging local banks there to look at various options to reduce its risk by converting part of the loan into Turkish lira.

“Because of the referendum that happened in April, we were not able to get firm quotes from the bank, for converting part of the euro loan into local lira,” he said after the company’s AGM yesterday

“One of the things that we’re looking at is converting part of that loan into local lira that will better match the exposure that we have.

“Now that the referendum is over, there has been no incident in Turkey since the middle of the year, so the situation seems more stable now.”

Low added that there was a dichotomy of views in Turkey whether interest rates should go up to control inflation or politically bring it down to stimulate the economy.

The Turkish lira has come under tremendous selling pressure of late and was the world’s second worst performing currency last year due to political uncertainties, rising inflation and terrorist attacks.

Year to date, the lira has depreciated 0.66% to 3.56 to the dollar.

IHH, the second-largest public-listed hospital operator in the world, opened two hospitals this year – Gleneagles Hong Kong and Acibadem Altunizade in Turkey in March.

According to Kenanga Research, Acibadem Holdings incurred higher operating costs and rental expenses arising from medical inflation in Turkey as well as further depreciation of the lira against the dollar and the euro.

IHH managing director and chief executive officer Dr Tan See Leng, however, emphasised that this was normal.

“Each time we open a new hospital we incur higher costs. But the start-up losses were significantly lower than what we had projected and budgeted for.”

The healthcare provider saw its net profit in the first quarter ended March 31, 2017 double to RM470mil from RM235.5mil in the previous corresponding period, following a RM313.4mil gain from its divestment of a non-core 6.07% stake in Apollo Hospitals.

Revenue during the quarter increased 8.5% to RM2.7bil compared with RM2.5bil in the same period last year, attributed to organic growth from its existing operations and the continuous ramping up of the hospitals opened in 2015.

On a separate matter, Dr Tan said IHH would continue to pursue new acquisitions if it is an “appropriate fit” for the healthcare provider.

The comment comes following reports that it is in the running to acquire controlling stakes in India’s Fortis Healthcare and Fortis Malhar.

Dr Tan, when asked, neither confirmed nor denied the claims.

“We normally don’t comment on specific deals, but we’re consistent and look at every single deal. The main reason is to learn from our competitors – what to do and what they’ve done right.

“But the critical success element is to learn what not to do,” he said yesterday.

Tan said there were “many attractive assets all over the world” to consider.

“I think the key thing at the end of the day is whether the fit is appropriate or not.

“I think the fit of the appropriateness is something that most parties would not know. If you’re asking whether we’re looking at it, the answer is we’re looking at many assets.”

According to reports, IHH has emerged as the frontrunner for the healthcare assets of siblings Malvinder and Shivinder Singh of Religare, after the Malaysian hospital chain ended its decade-long association with Apollo Hospitals last week.

Incidentally in 2010, Khazanah Nasional was locked in a battle with the Fortis Group for the Singapore-based Parkway Hospital Ltd, which is now IHH. Khazanah won the bid for Parkway.

Dr Tan said India and China offered good growth potential for IHH.

“In India, they have an established private sector. While it’s dominated by groups, the bulk of the industry is still quite fragmented, so we are able to grow inorganically via acquisitions.”

“In China, you don’t have the same depth in the private healthcare industry, so a lot of it we grow by a greenfield-type of set-up.”