Hony sells Chinese hospital to Hong Kong-listed platform

The transaction represents a liquidity event for the private equity firm’s latest fund – known as Hony Capital Fund VIII – which closed at $2.7 billion in 2016, but not an exit. Payment will be satisfied through the issuance of convertible bonds that entitle the fund to a 21.87% stake in HCC upon full conversion, according to a filing. The bonds have a five-year tenor.

Hony Fund V still holds a majority stake in HCC. The platform was formed to consolidate medical resources through M&A with a view to creating a national healthcare services network. Having seeded it with two Shanghai-based assets, Yangsi Hospital and Fuhua Hospital, Hony took HCC public last year, raising HK$343.6 million ($44 million).

The three hospitals to be added to the platform are Jinhua Hospital, a class-three general facility with a specialty in oncology and cancer, as well as Dongyang Hospital and Yongkang Hospital, both of which are classed as grade two. Jinhua is the largest asset with RMB514.4 million in revenue and RMB12.2 million in profit last year. The other two hospitals generated one-third of this revenue between them.

Guangsha Medical owns 80% of Jinhua and Dongyang and 65% of Yongkang. It also receives fees from hospital management agreements with each of the facilities. Hony paid RMB600 million for a 75% stake in Guangsha in April 2016. It will now sell Oriental Ally, the holding company for that entity, to HCC.

This will be the fourth addition to the portfolio in seven months. Last October, HCC acquired Jiande Hexu Enterprise Management, owner of a traditional Chinese medicine hospital and related businesses, for RMB483 million ($73 million). It subsequently bought an unnamed hospital in Guangzhou and Cixi Hongai Medical Management, operator of another unnamed hospital.

Meanwhile, Fuhua Hospital was sold for RMB43 million last August. HCC decided to dispose of the asset because it is a class-one hospital with limited scope for improving profits. The platform targets class-two or class-three facilities located in major Chinese cities with sizeable populations and attractive economic conditions.

HCC provides management and consultancy services to all its hospitals, with the fees accounting for nearly all its revenue. The company posted RMB149.2 million in revenue from continuing operations last year, up from RMB130.9 million in 2016, while profit declined to RMB9.2 million from RMB41.5 million.

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• Topics
• Greater China
• Trade sale
• PIPEs
• Healthcare
• China
• Hony Capital