KUALA LUMPUR: RHB Investment Research believes that IHH Healthcare Bhd
will continue to bid for Fortis Healthcare, given its plans to grow its footprint in India.
"We are of view that this would not be the end to IHH’s plans to acquire a strategic stake in Fortis, and that the bid for Fortis would be a long drawn-out process," said the research house in its Friday report.
In the latest development, IHH issued a supplementary, non-binding letter to the board of Fortis for IHH to infuse up to RM2.4bil into the latter through preferential shares.
It said the infusion is to fund the buyout of the assets from RHT Health Trust and to provide immediate liquidity towards working capital and infrastructure upgrades.
This comes on the back of IHH’s earlier non-binding offer of INR160/share for Fortis, subject to due diligence, which was rejected by the Fortis board as it had entered into a binding agreement with TPG Asia-backed Manipal Health.
However, RHB Investment Research believes that Fortis remains strategic to IHH's growth plans in India, which is the company's fourth home market after Malaysia, SIngapore and Turkey.
"Given strong secular growth trends in the country, expectations for the country’s healthcare expenditure to grow at 17% CAGR from 2011-2020F and generate revenue of USD280bn by 2020, we believe IHH would continue to seek out growth opportunities in India and extend its footprint in areas where it does not already have a presence, such as North India.
"With MYR6.1bn in cash and a net gearing of 0.2x, we are of the view that IHH has the balance sheet to fund the acquisition. We believe that Fortis’ hospital assets are strategic for IHH’s plans to grow its footprint in India, but the risk is for it to enter into a bidding war in order to secure a strategic stake."
Win a prize this Mother's Day by subscribing to our annual plan now! T&C applies.
