"...The last quarter performance has been impacted severely due to the continuing challenges that the company had been facing over the last 18 months that have led to liquidity issues," Chief Executive Bhavdeep Singh said in a statement.
FORTIS Healthcare Ltd is not the best of healthcare companies in India. However it has attracted four firm offers because of the tremendous potential the healthcare industry in India offers.
In January this year, the government announced a national healthcare insurance scheme to cover some 100 million of the population who cannot afford medical care. Poor families will receive Rupees 500,000 (RM32,000) each to help pay for their hospitalisation needs. The healthcare assistance is one of the reforms of Prime Minister Narendra Modi will implement as he seeks a fresh mandate from voters next year.
So it is no surprise that there is intense bidding for Fortis Healthcare, which includes Khazanah Nasional Bhd controlled IHH Healthcare Bhd
of Malaysia.
IHH is the only bidder that is making a firm bid for Fortis Healthcare without a partner from India in the race for Fortis. The other three bids from India-based companies.
The most competitive bid is from the Munjal-Buhman families. Dr Ranjan Pai of Manipal Healthcare has teamed up with private equity firm TPG while Radiant LifeCare Pvt Ltd and US-based private equity group, KKR are the other bidder.
IHH is going alone probably because it did due diligence on Fortis Healthcare a year ago when it was under the control of two brothers -- Malvinder Singh and Shivinder Singh. The brothers could not meet the conditions precedent for IHH to acquire Fortis, resulting in IHH walking away.
Now the banks and some funds control Fortis Healthcare after taking over the shares from the brothers, who left the company in dire straits. Fortis Healthcare has cash flow problems and auditors have not signed off the accounts because of alleged unauthorised payments made to third party companies when the brothers were in control.
India is a country with vast potential. But it is also a country where the terrain on regulated industries can be rough. Foreign investors have lost money being unable to navigate through the regulatory authorities.
Ask any mobile telecommunication company in India and they will tell you about the preferential treatment accorded to Reliance Jio, the young mobile telecommunication company that has stolen the thunder from the more established entities.
Three years ago, India had more than eight mobile telecommunications companies. Today only two of the incumbents -- Bharti Airtel and Idea Cellular Vodafone – are left standing after the entry of Reliance Jio.
Foreign investors complain of favourable treatment accorded to Reliance Jio, the telco that has taken the industry by storm with 177 million subscribers within a space of less than two years. They said that Telecom Regulatory Authority of India allows Reliance Jio to undertake predatory pricing is allowed
However the authorities tend not to react because Reliance Jio has brought down the cost of communications.
Similarly, healthcare is another highly regulated industry. The risk of companies controlled by locals navigating issues with authorities is much lower compared to foreign owned companies.
Apart from regulatory risk, Fortis Healthcare itself is likely to see intense bidding.
In the latest development, the Fortis board has given the consortium comprising Manipal –TPG until May 6 to come up with a revised offer while it deliberates the proposal from the three other suitors who have come up with binding offers.
The board has said that the additional time given to Manipal-TPG is because it has to adhere to an obligation that the company had given to them much earlier. The extended deadline open for Manipal-TPG has drawn rebuke from one of the bidders.
The joint venture between two Indian families – Munjal and Buhman families -- has called on the board of Fortis to adopt “a level playing field” when evaluating all offers on the table while stressing that its offer was the highest on the table so far.
The offers for Fortis Healthcare are between a tight range of US$1.2bil and US$1.4bil with each of the companies coming out with different structure and permutation. Based on pure numbers, the highest offer so far is from the Munjal- Buhman families.
However the board that is now reinforced with additional members to ensure that the best deal is on the table for shareholders of India’s second largest healthcare provider. It is likely that the price will go higher than the current range of offers.
Fortis Healthcare is India’s second largest healthcare group with 6,500 beds. It however has problems with its books. The auditor has not given it a clean bill of health while it has cash-flow problems to run its operations. Last month Fortis healthcare raised about US$24mil to stay afloat until it gets a new owner,
The structure of Fortis Healthcare is also complicated where the hospitals are parked with a real estate investment trust that is listed in Singapore. The listed Fortis Healthcare is in the process of unwinding the structure for the hospitals to be brought back to the listed company in India. However that requires injection of new funds.
IHH has a strong base in Singapore, which is giving it the advantage over other healthcare companies in the region. Some 40% of its numbers are contributed by patients out of Singapore.
IHH has expanded in the region including Hong Kong. It is also in Turkey where the business is good. However the weak lira due to the instable government has affected its numbers.
India healthcare business has tremendous potential. But it is also a minefield. The risk is not only the financials of Fortis Healthcare but also the regulatory environment in India.
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