India: Bain Capital joins KKR, TPG in race for Fortis Healthcare stake

Visual from Fortis website

Global private equity (PE) fund Bain Capital has started talks to buy a significant minority stake in Fortis Healthcare Ltd (FHL), three people aware of the development said, making it a four-horse race for equity in the hospital chain owned by brothers Malvinder Mohan Singh and Shivinder Mohan Singh.

Apart from Bain, three more global PE giants—KKR, TPG and another contender whose identity is not known—are in the fray, the people mentioned above said on condition of anonymity.

“Discussions with Bain and TPG are currently only for a minority 26% stake in the company,” said the first of the three persons cited above, adding KKR, meanwhile, is in talks for a controlling stake. On 5 January, Mint had reported on the talks between KKR and the Singh brothers for a majority stake in Fortis, alongside a structured equity deal in RHC Holding Pvt. Ltd (RHPL). RHPL is the holding firm for the Religare and Fortis brands.

The Economic Times had on 13 December reported on TPG’s interest in acquiring a large minority stake in the company.

“While talks with KKR are still at an early stage, discussions with the other three PE funds are currently in a due diligence stage,” the second person said. “They (PE funds) are expected to put the proposal before their respective investment committees for approval, following which they are expected to make a formal offer for the stake,” this person added.

Emails sent to Fortis, KKR and Bain Capital remained unanswered till the time of going to press. A TPG India spokesperson replied, saying “TPG follows a strict disclosure policy and hence is unable to confirm or deny these suggestions about our interest in the company.”

As on 28 November, 2016, Fortis Healthcare Holdings Pvt. Ltd (FHHPL) controlled by the Singh brothers held a 67.5% stake in FHL. “What the promoters finally do remains to be seen but they are looking at options to reduce debt at various levels in the group and the stake sale in Fortis is part of it,” the third person said.

In November, Mint had reported that RHPL is in talks to refinance $300 million debt. RHPL is a closely-held investment company owned by the Singh brothers.

“The Singh brothers are hoping to transfer the ownership of Fortis Hospitals from Singapore- exchange listed Religare Health Trust (RHT) to the balance sheet of FHHPL. This, the promoters feel, will improve the valuation of FHHPL,” the second person said adding that it would also improve the debt/equity ratio and bring the group’s debt to serviceable limits.

Mint has previously reported on talks between the Singh brothers and potential lenders to refinance a chunk of the debt owed by the promoter group. Responding to a Mint query, an RHPL spokesperson said, “Fortis Healthcare Ltd. had received board and shareholders approval for raising fund up to Rs5,000 crore. The company is evaluating various strategic options to accelerate growth and maximize value. We would not like to comment on market speculation.”

As on 31 December, 2015, FHL (consolidated) had a network of 54 healthcare facilities (including projects under development), about 10,000 potential beds and 306 diagnostic centres. For the first nine months FY16 (consolidated), FHL’s total operating income was Rs3,305 crore on a profit (after tax) of Rs66 crore. The combined debt of FHHPL and RHPL stood at Rs4,700 crore as on 31 March, 2016.

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This article was first published on Livemint.com