Actis supports Sri Lanka hospital consolidation

"Sri Lanka is like India in that higher per capital GDP means consumers are looking for better quality services," J.M. Trivedi, head of South Asia at Actis, tells AVCJ. "A large portion of the population is served by government-owned hospitals, and the standards are relatively good, but the middle-to-affluent classes prefer private treatment. Asiri is serving this clientele."

India remains an attractive market for investors in private healthcare: despite rising disposable incomes, the country's healthcare expenditure to GDP ratio is barely 4%, well short of the 9% global average, yet private sector receives $3 out of every $4 spent. Sri Lanka, though smaller, is even further back on the development track and faces the same imbalance between demand and supply.

"The private hospital market is growing at more than 20% year-on-year, much faster than wider industry," says Trivedi. "Government hospitals aren't able to meet rising healthcare needs and so the private sector steps in."

When Actis invested in Sterling it was a one-hospital brand. Over the past six years, the company has grown to seven multi-specialty facilities with more than 1,000 beds. The development model for AHH is almost identical: scale up and drive operational efficiencies and economies of scale.

The first step is consolidating the company's existing assets - including Asiri Hospital, Asiri Surgical Hospital, Asiri Hospital Matara and The Central - und Colombo-listed AHH. Of Actis' $32 million investment, $17.2 million was transacted through a private placement of shares, amounting to a 19.09% stake in the firm, while the remainder was used to buy a 10% interest from existing shareholders.

According to a regulatory filing, the private placement alone took Actis' overall stake to 25.5%. This is because the PE firm invested in another Asiri subsidiary in August, which owned a portion of the assets now being consolidated under AHH.

Ashok Pathirage, founder and CEO of the Asiri group, remains the largest overall shareholder, owning a 51% interest through his conglomerate, Softlogic.

Actis' capital will also be used to further the company's expansion plans. AHH currently has 600 beds and a 30% market share in Colombo - rising to 40% for diagnostics - and wants to take the brand nationwide. Actis plans to remain involved for the long haul, recognizing that hospitals are a capital intensive business and so AHH might require additional funding beyond the standard 3-5 year investment period.

"We are looking at five years or more," says Trivedi. "In five years time AHH should be one of the largest and most active hospital chains in Sri Lanka."

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• Topics
• Expansion
• Healthcare
• South Asia
• Growth capital
• India
• Sri Lanka
• Actis Capital
• healthcare