Time has passed when offer price of Rs 170 for a share was good: IHH's Loh

Will start rebranding Fortis as Parkway shortly: Fortis chairman Ravi Rajagopal

Even as Kuala Lumpur-headquartered IHH Healthcare is in talks with the Securities & Exchange Board of India (Sebi) in order to proceed with the open offer for Fortis Healthcare and raise its stake above 51 per cent, the offer price could emerge as a key point. From the four-year old price of Rs 170 a share for the open offer, Fortis shares are trading at Rs 280 apiece on the BSE now. Kelvin Loh, Managing Director and CEO, IHH Healthcare Berhad, and Ravi Rajagopal, Chairman, Fortis, in a conversation with Sohini Das & Nivedita Mookerji, spoke about offer price, regulatory challenges, promise of the India market,  expansion plans and more. Edited excerpts:

Are you open to revising the price for the open offer, now that shares are trading at Rs 280 apiece?

Loh: We have to wait for the next step, and we are seeking clarification from Sebi about the price. That price was established in 2018, and there are specific regulations around how that price is arrived at. The price was Rs 170 per share. And currently, that requirement has not changed. The time has passed when a price of Rs 170 per share was good; the company has done really well… The local management has turned the company around remarkably. Because of that, the share price now is much higher. It’s a transformative acquisition for Fortis and IHH, and we want to have the biggest stake in the company as we had wished in 2018.
 

Rajagopal: Fortis hopes that IHH will increase its shareholding to over 51 per cent as soon as possible.

If the regulator does not allow a change in the price for the open offer, what are the options to raise IHH shareholding in Fortis?

Loh: In the financial markets there are different ways to increase stake. We will go step by step. We are committed to Fortis and we would look for ways in which we can invest more capital. We have been engaged with Sebi and we hope we get clarity from them very soon. 

Have you faced similar challenges in any other geography where you operate?

Loh: We have not faced such a situation in any other geography fortunately. We have faith in the Indian judicial system. The way we did this acquisition was in full compliance with the laws… We brought in fresh capital and acquired 31.1 per cent. In many ways we feel we are the aggrieved party despite having done everything in full compliance of the laws. Our frustration stems from that.

What about getting new partners? Media reports suggested Adani Group as a potential investor….  

Loh: We are not engaged with any potential investors or partners. It was not the goal from the very beginning.

Listing SRL was a plan earlier. Is this also a way to raise capital?

Loh: SRL is a subsidiary of Fortis. From IHH point of view, we are deeply invested in the Fortis Group and that includes SRL. We are very interested in the diagnostic business. As for strategies for SRL, it’s a matter of Fortis management and Fortis Board.

Rajagopal: No point in listing SRL at the moment. What we have to see is the way the Sebi case goes, and the matter comes back to Delhi High Court. If there’s a delay in terms of required capital injection, we may have to consider listing SRL. Over 10 years, there are PE investors in SRL, and they may have exit plans.

What is your opinion on the proposed forensic audit of the Religare Health Trust (RHT)-Fortis transaction?

Rajagopal: The Supreme Court suggested to the Delhi High Court to consider a forensic audit of the Fortis-RHT deal. On our part, we would try to put up our arguments as to why we think a forensic audit is not required…. In the last few years we have shown that the buyback transaction was very transparent. It was done through EY. It had the shareholder support. We had also submitted a complete RHT shareholding structure to the court…. We said that in our due diligence we did not find any evidence of the RHT shareholding being beneficial to anyone else other than what was in the list.

When will you rebrand Fortis?

Rajagopal: We will rebrand Fortis as Parkway. We have filed that notice with the stock exchanges. Because the SC proceedings were ongoing, out of extreme precaution we also made this a part of our submissions in court. This is, however, not a sub judice matter. We would now be moving very quickly with the rebranding – it’s a matter of filing with the authorities, trademark registrations etc. We will start moving the process shortly, maybe within the fiscal year….

Won’t it be a challenge to change a known brand like Fortis?

Rajagopal: Fortis brand name was owned by an entity owned by the promoters. Sebi had barred us very specifically from having any financial transactions with the former promoters. It was not legally possible to license the brand now…. Our marketing people are getting ready with plans for a campaign around rebranding Fortis to Parkway.

How important is India as a market for you globally?

Loh: We buy hospitals to grow them. We are not here to flip assets. We have 82 hospitals in 10 countries. Four countries – India, Malaysia, Turkey and Singapore – are our key markets. India contributes 20 per cent of the global Ebitda. It is a fast growing market for us. Fortis now has 4,000 beds, and we plan to add another 1,000 beds over the next few years….We had a plan for a turnaround in the first 100 days. We wanted to bring in operational efficiencies, keep costs low, have global procurement initiatives, reduce our financing costs, sharing best practices, clinical practices etc.

How would you ensure low cost of healthcare?

Loh: Medical inflation is a burning topic. How we can play a role as a global healthcare provider to keep costs low for consumers without compromising on clinical outcome is our focus.

How did you use the Rs 4,000 crore capital infusion from IHH, and what plans do you have next if fresh capital comes in?

Rajagopal: Out of the Rs 4,000 crore that came in, around Rs 3,700 crore went into buying back assets from RHT, and the balance Rs 300 crore was spent into paring debt. The Rs 1,000-1,200 crore of capex was all internally generated cash from profits. This is in addition to paying down debt of Rs 1,000 crore in the last four years. We had about Rs 2,000-crore debt in 2018, and now we have under Rs 700 crore debts…. From Fortis point of view, the frustration is that we are not able to participate in merger and acquisition activities. As a professionally managed company with international shareholders, we can bring in credibility to our patients, our footprint and our presence could have been a lot bigger, had we been not constrained by capital. We are expanding organically – at seven of our hospitals we are expanding.

Are you looking at further acquisitions in India?

Loh: We will look for acquisitions in India through the Fortis platform. We are not a financial investor, or in the business of flipping assets. We are here to create a better healthcare model.

Rajagopal: Once fresh capital comes in, we will invest more in technology, digital and growth – both organic and inorganic. We are not having any conversations with potential entities for acquisitions if we don’t have the purse now. We would like to expand beyond cities and metros to smaller tier 2 towns and the hinterland in major states.

As the largest healthcare group of Asia, does IHH aspire to be the biggest in India?

Loh: India is a key market and one of the fastest growing. We want to be known as the most trusted in quality. It’s not our target to be the biggest.