Singh brothers shed 25% Fortis stake in six months

IFC, Amansa, Birla Sunlife among institutional holders who have picked stake

The promoters of hospital chain Fortis Healthcare have quietly reduced their stake by almost 25 per cent in small tranches over the past six months, even as talk of a large stake sale keeps floating.

Malvinder Mohan Singh and Shivinder Mohan Singh have reduced their stake, held through investment firms, to 42.96 per cent from 67.6 per cent at the end of December, when media reports of a proposed stake sale first surfaced. 

This is the lowest level of shares held by the promoters since the company listed a little over 10 years ago. The holding was as high as 81.47 per cent in March 2013. It had come below 75 per cent in sync with the regulatory norms but consistently stayed above 70 per cent, before breaching this last November. It has been a steep fall since. 

If one compares with the previous June, the fall is 28.31 percentage points. The value of this diluted stake at the current stock price of Rs 164 would be a little over Rs 2,400 crore. If one considers the price of Rs 220 a share in May, the value of diluted stake could cross Rs 3,000 crore. 

While a part of the stake dilution of about 4 per cent is attributed to 35 million shares issued to foreign currency convertible bond holders in January, the rest is due to sales in small tranches in the open market. 

A significant portion of the shares having been pledged with lenders could also have played a part, said analysts. Group sources said the sales were part of a larger deleveraging exercise. They added that stake falling below 50 per cent would not have any major impact on valuations, as control remained with the promoters. 

One factor is that the diluted shares have been fairly distributed. Several institutional investors have increased stake during these six months. While only two mutual funds held negligible Fortis shares in December, the number has risen to 29 funds holding a combined 5.76 per cent. Birla Sun Life’s Balanced Fund 95 had the largest holding, of 1.76 per cent. 

Similarly, the holding of foreign portfolio investors went up to 32.65 per cent, from 20.66 per cent only six months earlier. International Finance Corp (3.88 per cent), WF Smaller Companies Fund (two per cent) and Amansa Holdings (1.55 per cent) are among the major buyers. Standard Chartered Private Equity has cut its stake. 

Such large divestments by promoters through open market operations is not so common. It assumes significance amid the ongoing legal battle between them and their erstwhile Japanese partners. 

In September, Fortis shareholders approved fund raising of up to Rs 5,000 crore. While several PE firms were speculated on as being in the race for this 26 per cent, the legal battle against the brothers had stirred the pot. In January, the Indian subsidiary of Daiichi Sankyo moved the Delhi high court for an interim injunction against the brothers selling any stake in Fortis. The brothers had earlier moved the court against a Singapore International Arbitration Centre order in the matter of sale of Ranbaxy to Daiichi in 2008. 

The brothers now hold 222.76 million Fortis shares or 42.96 per cent, according to the latest shareholding pattern reported by the firm to the exchanges. This holding, as of June, would be worth Rs 3,650 crore at Thursday’s close. The shares fell 1.41 per cent to close at Rs 163.80.  

Most of the promoter shares are held through Fortis Healthcare Holdings, the holding entity controlled by the family. Around 82.5 per cent of these holdings have been pledged with lenders.