IHH Healthcare says Fortis remains its main platform for growth in India

Malaysia's IHH Healthcare has stressed that it is committed to the Indian market on a long-term basis and Fortis Healthcare remains its main platform for growth in the country.

Terming the freeze on its open offer to acquire an additional 26.1 per cent stake in Fortis as 'unfortunate', the Malaysian entity feels that the ongoing legal battle has prevented it so far from injecting additional capital into the Indian healthcare provider. The company, which acquired a 31.17 per cent stake in Fortis by infusing fresh capital of ₹4,000 crore in November 2018, is currently waiting for a go-ahead from capital markets regulator, Sebi to proceed with its stalled open offer to acquire additional 26.1 per cent stake in the domestic healthcare major.

The open offer, which was originally scheduled to commence on December 18, 2018 and close on January 1, 2019, entailing a total sum of ₹3,300 crore, could not materialise due to a Supreme Court order.

IHH Healthcare Managing Director and CEO, Kelvin Loh said the last four years have turned out to be very frustrating for the company that counts India as one of its key markets.

"Is there frustration? Yes there is," he said when asked about the legal proceedings which began in 2018.

"We feel that we are the aggrieved party here because the Supreme Court case was really between Daichii Sankyo and Singh brothers, in which we really had no part," he noted.

Loh noted that IHH counts India, Turkiye, Malaysia, and Singapore as its major markets even as it operates 82 hospitals across ten nations. "When we say we are committed to healthcare in India, we see a lot of opportunity for growth. We will be here for the long term because we are not financial investors, we are a strategic healthcare operator and the main platform for growth in India for us is Fortis," Loh said.

The battle so far

The IHH-Fortis deal got stuck due to a legal battle between Daiichi and the former promoters of Fortis Healthcare.

The former promoters of Fortis Healthcare --  Malvinder Singh and Shivinder Singh -- were facing the court battle after Japanese firm, Daiichi Sankyo challenged the Fortis-IHH share deal to recover the ₹3,600-crore arbitration award that it had won before a Singapore tribunal against the Singh brothers.

In 2018, when some Indian lenders sold the pledged shares of Fortis Healthcare to the Malaysia-based firm, Daiichi went to court alleging that the former promoters of Fortis had assured them that their shares in the Indian hospital chain will cover the arbitral award amount.

Later, the Supreme Court ordered status quo with regard to the sale of controlling stakes of Fortis Healthcare to IHH Healthcare by Malvinder Singh and Shivinder Singh, and put on hold IHH's open offer for an additional 26.1 per cent stake in Fortis.

The 26.1 per cent stake would have increased IHH's shareholding in Fortis to 57 per cent.

"But unfortunately, it got stuck. Even more unfortunate has been the suspension of the process for four years now and that really frustrates us," Loh noted.

IHH has already brought in management and operational changes in Fortis helping the company, which was on the verge of bankruptcy, recover financially.

IHH, however, aspires to help Fortis grow even faster, Loh said.

Commitment to Fortis

"We are committed to Fortis, we are committed to healthcare in India. We keep transforming and improving the healthcare product that we provide here in the country and of course, we aspire that we can grow even faster. Maybe inject more capital to grow on this," he noted.

Fortis through its own means can grow from its current 4,000 beds capacity to 5,000 beds in the next two years, Loh said.

"With our support, it can grow even faster. If we can bring in additional capital for growth, greenfield expansion or even acquisitions, it can grow even more. We would like to do that," he noted.

Fortis Healthcare Chairman, Ravi Rajagopal said it was unfortunate the way things have turned out for IHH Healthcare.

"In its ruling (the Supreme Court), according to my mind, has not cast a single negative aspersion either on IHH or Fortis. Despite that, the fact that it has taken so long, the frustration for Fortis is that it has been bereft of capital to grow its business," he said.

IHH stake consolidation would have resulted in capital infusion in Fortis helping it scale up operations.

Rajagopal said that the majority of the initial ₹4,000 crore capital infusion by IHH went into the buyback of assets and debt payoff, leaving Fortis with little funds for expanding operations.

"If we want to grow in the way the rest of our peer group has grown, through both internal investments as well as inorganic, then we would need that extra capital. As a major shareholder, we look at IHH to help us secure that capital. Till such time, till September (this year), while the status quo was in force, those possibilities could not have been explored, but now those options are open," he said.

In a statement last week, IHH Healthcare noted that following the recent judgment of the Supreme Court of India, the special leave petition, the original contempt petition and the suo moto contempt petition are disposed of.

"The honourable Supreme Court has not found nor indicated any wrongdoing by IHH in terms of our investment into Fortis in its final written judgment dated September 22, 2022. There is also currently no court order pending against IHH in these proceedings," it said.

Accordingly, IHH is now in discussion with Sebi to determine the next steps pertaining to the mandatory tender offer in Fortis, in full compliance with all requisite regulations, the Malaysian firm said.

On replacing Fortis brand name with Parkway, Rajagopal said: "The Fortis board had decided a year ago to change the brand name to Parkway because the Fortis brand does not belong to Fortis Ltd, it belongs to a company, which was owned and controlled by the former Fortis promoters." He further said: "We filed a notice with the stock exchange as well as with the Supreme Court last year on our intent. Now with the Supreme Court order behind us, we will be moving very quickly to change the brand name." When asked for the timeframe for the same, Rajagopal said the matter involves trademark registration.

"We already have checked out the trademarks, but there is a process of filing it formally and going through that due process. It should take a few months," he added.

IHH had pipped rival Manipal-TPG combine in the race to acquire Fortis Healthcare.