India's Fortis Weighs Options to Raise $790 Million Capital

(Bloomberg) -- Fortis Healthcare Ltd. is seeking a cash injection of as much as 50 billion rupees ($790 million) as part of its billionaire founders' talks to sell their stake in India's second-largest private hospital chain, according to President Daljit Singh.

Malvinder and Shivinder Singh have been in talks with private equity firms for the past year to sell their 34 percent stake in Fortis to pay down debt at their holding company, Daljit Singh said in an interview Thursday. The deal could also bring fresh capital for Fortis that would be used to partly finance the acquisition of its Singapore-based trust, announced in November, he said.

Fortis is also exploring other structures for a capital infusion, which could result in dilution for existing shareholders, Singh said from the company's headquarters in Gurgaon, outside New Delhi. Fortis has a market value of about $1.3 billion.

A spokesman for RHC Holding Pvt, the Singhs' holding company, said the brothers are complying with India's court order to not sell their holding in Fortis as part of an on-going dispute with Japan's Daiichi Sankyo Co. and aren't in talks with PE firms on a stake sale.

“In order to take care of the group's problems we need to infuse money into the organization -- the promoters need to get money,” Singh said, referring to the founders using a term that connotes they have control of the company. “There have been discussions with prospective partners to invest either a primary infusion or to buy out the shares of the promoters in a manner that makes sense for the entire group.”

Singh declined to name the firms involved in the negotiations. Bloomberg reported in March the Singh brothers were in talks with private equity firm TPG Capital LP and Kuala Lumpur-based hospital operator IHH Healthcare Bhd. to explore an investment in Fortis. 

Missed Payment

The efforts to raise cash come at a difficult time for both Fortis and its owners. While the credit rating of the Singhs' main holding company was downgraded to “default” for missing an interest payment, Fortis has struggled to remain profitable in recent years, caught between rising costs and government efforts to restrict what they can charge patients.

“Today it's probably the least attractive investment proposition from a business point of view,” said Singh, who is not related to the founders who are Fortis' largest shareholders. “You've got to be a dud to invest in health care.”

A potential Fortis deal could be complicated by an ongoing court case with Japanese drugmaker Daiichi Sankyo. India's top court has ordered the Singh brothers not to sell or dilute their shareholding in Fortis until it decides on Daiichi's petition to place a longer-term halt on asset sales by the Singhs.

Daiichi is trying to enforce an award of about $500 million by a Singapore tribunal which found the brothers concealed critical information during the sale of their generic drug firm, Ranbaxy Laboratories Ltd., to Daiichi in 2008. The Singhs are contesting that ruling.

In the meantime, profitability has emerged as a key issue at Fortis and across India's private hospital space in the last year as the government imposed price controls on coronary stents and knee implants, impacting margins. Fortis shares have declined about 12 percent in the past year. The company's stock surged as much as 4.4 percent Friday, before giving up gains. Shares slid 0.5 percent to 163.30 rupees at the close.

Investor Concerns

Fortis reported a negative profit margin in the fourth quarter and 0.5 percent for the first quarter that ended June. That makes Singh's task of raising money for a hospital business more difficult, he said.

“When you aggregate everything together, we are not making money, or we are at best making low money,” he said.

To counter those headwinds, Singh said Fortis has engaged in a campaign of cost controls; cutting head office staff, standardizing processes and finding ways to reduce the amount of time patients have to stay in the hospital. He projects that in two years, the company's margin on earnings before interest, taxes and other expenses will go to around 20 percent from 7.9 percent last year.

Singh said the the company's purchase of its Singapore-listed RHT Health Trust for an enterprise value of 46.5 billion rupees will work to increase the hospital chain's profitability and make the business more attractive to investors who see potential in India's largely-private health care sector. The trust has acted as a kind of landlord to Fortis' hospitals.

When it announced the transaction, Fortis said it was in talks with financial and strategic partners to raise 50 billion rupees with a combination of equity, quasi-equity and debt.

“They are also very concerned about the returns,” he said of investors. “They are very concerned about how money will actually be made on the ground.”

--With assistance from Karthikeyan Sundaram

To contact the reporter on this story: Ari Altstedter in Mumbai at aaltstedter@bloomberg.net.

To contact the editors responsible for this story: K. Oanh Ha at oha3@bloomberg.net, Abhay Singh

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