Hospitals to reap the benefits of RBI's health care liquidity injection

While top hospital chains reported an average borrowing cost of 9.8% in H1FY21, loans under the special RBI liquidity window for the health care sector are expected to come at around 6%

The special liquidity window announced by the Reserve Bank of India (RBI) for the health care sector is anticipated to accelerate the growth plans of top hospitals chains.
 
The country’s top hospital chains reported an average borrowing cost of 9.8 per cent in H1FY21. Loans under the special RBI liquidity window for the health care sector are expected to come at around 6 per cent.
 
Bank borrowing is an important funding source for hospitals and it accounts for nearly half the capital employed by companies in new projects. Interest on borrowing is, however, a minor cost for hospitals. The country’s top 24 listed hospital chains and health care providers had gross borrowing of around Rs 14,000 crore at the end of September 2020 (H1FY20), which translated into a gross debt to equity ratio of 0.65x.
 
Some companies in the sample include Apollo Hospitals, Fortis Healthcare, Max Healthcare, Narayana Hrudayalaya, Fortis Malar Hospitals, Kovai Medical Centre, Aster DM Healthcare, Artemis Healthcare, Metropolis Healthcare, and Shalby and Indraprastha Medical Corporation. Many leading hospital chains, however, reported a higher than average leverage ratio during the first half of FY21. Apollo Hospital Enterprises, for example, had a gross debt to equity ratio of around 1x at the end of September 2020 while the Aster DM Healthcare’s leverage ratio on a consolidated basis was around 1.5x.
 
Other hospital chains with leverage ratios higher than 1x include Kovai Medical Centre, Dr Agrawal’s Eye Hospital and Healthcare Global Enterprises (see the adjoining chart).
 
Analysts say many hospital chains could use the liquidity window to retire their old loans.
 
“Given that we raised capital recently, we don’t have any plans to increase our net borrowing. We may use this credit window to re-balance our existing debt levels and augment infrastructure during this pandemic times,” said Suneeta Reddy, managing director, Apollo Hospitals Group.
 
The company says the RBI liquidity window offers debt of up to three years, which is more helpful for augmenting working capital lines and could be useful in strengthening its health infrastructure.
 
The company said its net debt was around Rs 2,400 crore at an average interest rate of below 7 per cent.
 
Fortis Healthcare says it has started discussions with banks to raise fresh capital.
 
“We will not link our capex plans to any kind of incentives. However, we do not want to defer any of our capex commitments that we have for this year and following year,” Fortis Healthcare Managing Director and Chief Executive Officer Ashutosh Raghuvanshi told Business Standard.
 
Dilip Jose, managing director, Manipal Hospitals Group, said they would like to explore this new funding window.
 
Apart from the option of borrowing for creating additional infrastructure, he said this might also provide an opportunity to reduce the cost of debt from the current levels.