IHH Healthcare Bhd, Asia’s largest private hospital operator, is set to buy a controlling stake in Fortis Healthcare Ltd and SRL Diagnostics from billionaire brothers Malvinder and Shivinder Mohan Singh in a deal that values the two companies at close to $2.9 billion, two people directly aware of the development said.
“The final valuation has been agreed upon and an announcement in this regard is expected in the next few weeks,” said one of the two people.
The transaction will make IHH Healthcare the second-largest hospital operator in India and help the Singh brothers trim Rs4,064 crore debt in RHC Holding Pvt. Ltd, their holding company.
IHH Healthcare, majority owned by Malaysian sovereign wealth fund Khazanah Nasional Berhad, will initially buy a 26% stake in Fortis, the people cited above said, requesting anonymity. The acquirer will then have to make a mandatory open offer to buy an additional 26% from public shareholders to comply with local rules.
Separately, IHH will also acquire a controlling stake in unlisted SRL Diagnostics, a pathology lab chain, and listed Fortis Malar Hospitals Ltd (a listed Fortis unit that runs a hospital in Chennai) from the Singh brothers.
“Both sides have agreed to a valuation of Rs14,000 crore for Fortis Hospitals and SRL at close to Rs5,000 crore, taking the combined deal value to Rs19,000 crore, or $2.9 billion,” the second person said.
At that valuation, IHH, a relatively late entrant in the race to acquire the assets, will pay close to Rs3,600 crore for a 26% stake in Fortis. “The infusion of fresh equity in Fortis Healthcare will be used by the company to buy back Religare Health Trust (RHT), a Singapore-listed business trust in which it owns 30% stake,” the people cited above said. “The buyback is expected to add annual savings to the tune of Rs400 crore in service fees,” they added.
Mint reported in January that private equity fund TPG Capital had bid for Fortis Healthcare and the merged entity of SRL Diagnostics and Fortis Malar Hospitals. TPG had offered to pay Rs3,000 crore for a 26% stake in Fortis Healthcare and an additional Rs1,500 crore for a majority stake in SRL Diagnostics and Fortis Malar through a secondary sale.
In August, the board of Fortis Healthcare had approved the demerger of its diagnostics business and proposed to list it separately through a reverse merger with Fortis Malar Hospitals. The parent currently owns 62.9% in Fortis Malar.
The deal may face opposition from Daiichi Sankyo, which approached the Delhi high court earlier this year to restrain the Singh brothers from selling assets, specifically Fortis Healthcare. The Japanese drug maker said that the Singh brothers were looking to exit Fortis Healthcare, which would hamper recovery of damages of Rs2,562 crore awarded by a Singapore tribunal.
The Delhi high court had, in March, directed the brothers to furnish details of all their unencumbered assets in order to ensure the use of such assets to satisfy the arbitral award at a later stage, if required.
A spokesperson for IHH declined to comment on specific transactions but said it is “always looking at various value-accretive opportunities”.
An RHC Holding spokesperson said: “We cannot comment on speculation.”
“With respect to your query on litigation, would like to say that the court order is applicable only in respect to the unencumbered assets to parties to the litigation, namely RHC Holding and Oscar Investments Ltd. The operating listed entities of the group and its subsidiaries, including Fortis and SRL, are not party to the litigation,” the spokesperson added.