Khazanah, Fortis – and GIC? – square off for Parkway

The contest is also a proxy battle between two of the most ambitious players in India’s evolving healthcare space: Fortis and Apollo Hospitals, another Khazanah investee backed by the Reddy business family.

Offer structure

Khazanah, previously the largest shareholder in Parkway prior to TPG Capital’s $685.3 million exit of its 23.9% stake to Fortis in March, is offering a 25% premium over Parkway’s latest closing price, and will gain marginal majority control of Parkway if the bid succeeds. Parkway’s shares rose almost 25% in Singapore on Monday following the offer.

Under Singapore’s takeover code, the partial offer does not trigger a mandatory general offer for all shares, since it targets a specific stake size. Sources attached to the bidding group confirmed to AVCJ that Khazanah has sought and received approval from Singapore’s Securities Industry Council for the partial offer. However, they added, this does require the approval of at least 50% of shareholders – excluding the bidder. Khazanah has to pick up at least 313 million shares to go over the 50% threshold. Sources have forewarned that there are still considerable execution risks in attempting to bring this off.

Reports are reinforcing market speculation that Singapore’s own SWFs might support Fortis against the Khazanah bid. In April Singapore’s GIC Special Investments injected $84.5 million into Fortis, and Fortis itself is now at liberty to make a counter-offer. However, Fortis acting alone might have difficulty funding a counter-bid. The group’s already-stretched balance sheet might preclude this. And, with less than six months in the business, it apparently is precluded from making a partial offer like Khazanah’s. Backed by GIC, that would not be an issue.

Faceoff for the healthcare space

Khazanah stated that, if successful, it will consolidate its other regional healthcare holdings, including Apollo, with Parkway to create Asia’s biggest integrated healthcare provider.

“The healthcare industry is a key focus sector for Khazanah in which it has substantial experience,” Khazanah’s public statement read.

As AVCJ sources emphasized, confidence in the growth of Asia’s healthcare space, on the back of overall positive macroeconomic factors and rising disposable incomes, is such that strategics and investors alike feel comfortable paying high multiples to pick up attractive growth assets. Companies like Parkway and Fortis, which previously had a domestic focus, are now looking regionwide to maximize their opportunity set.

Fortis is backed by billionaires Malvinder and Shivinder Singh, founders of Ranbaxy Laboratories. Apollo Hospitals, meanwhile, is backed by Dr. Prathap C. Reddy and the Reddy family. Reddy family executives at Apollo have already signaled their approval of the Khazanah bid and its objective to create a broader healthcare platform – presumably with Apollo heavily involved.

Singapore’s formal position on the outcome is unclear. Regulators and officials in the Lion City may be content to simply let the situation play out according to market rules, not least as Fortis would still realize a profit if it had to exit Parkway. Speculation that Fortis might reap profits from a Parkway exit has already driven the company’s share price higher in India.

However, GIC may be reluctant to see its investee withdraw from the asset, and commentators have emphasized Fortis’s difficult position when faced with a sovereign bidder with far greater capital resources. GIC might at least feel ready to even the score – and it is certainly not clear whether Singapore Inc. would like to see a key entity in a crucial regional sector launched out of Singapore by its long-time competitor just over the causeway.

CIMB Bank and Deutsche Bank are advising Khazanah on the move.

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• Topics
• Southeast Asia
• Healthcare
• Buyouts
• TPG Capital
• GIC Special Investments