BL interview. Acquisition of Fortis was transformational for IHH in India, says Dr Kelvin Loh, MD and CEO

Dr Loh: Wind back to the acquisition in 2018, when the then Fortis board ran an auction process for investors. IHH won that bid and we got 31.1 per cent stake by injecting fresh capital of Rs 4,000 crore into the company. We were also given a preferential allotment of shares. As required by SEBI regulations, this triggered a mandatory takeover offer.

Since then, you know what has happened. There was an SC case between Daiichi and the erstwhile promoters. We were unfortunately trapped in this for no fault of ours, because we brought money and capital into Fortis in a transparent manner, following procedures. Nevertheless, there was a status quo order, which meant that no transaction could happen, the mandatory open offer could not happen.

Now the SC judgement has been given. Various petitions have been disposed off, which means there is no order in the SC standing against the IHH. Therefore we are seeking clarification on the next steps forward on the mandatary takeover offer, including clarifications from SEBI on it.

Dr Loh: On the forensic audit, SC had said, prima facie, the purchase of the properties from the Trust (RHT) by Fortis was done in a proper manner for business purposes. And, they said, the Delhi HC may also consider a forensic audit on this and related transactions. It’s a matter for Fortis. As it stands now, there is no SC order that stands against IHH.

Dr Loh: Lets await SEBI’s clarification. In 2018, a price of Rs 170 per share was established through proper procedure – currently there is no change in that requirement.

Ravi Rajagopal: SRL has always been an integral part of the Fortis group, and will continue to remain so. We don’t see any plans different from that.

No, there are no plans for a strategic partner because we are one of the oldest in the business, and I don’t know what a new partner can bring. We have IHH – who have their own diagnostic presence in SE Asia – there is really no need to look for anyone else.

SRL is a subsidiary of Fortis. IHH nominees are on the Fortis board and the board will decide the future of SRL. So far, the message from them has been – they see SRL as an important part of Fortis, and would like to see us continue to invest and grow it and not to divest it or anything like that.

Dr Loh: IHH’s acquisition of Fortis was done in a fair, transparent manner, in compliance with all regulations. We have every confidence in the Indian judicial system, that the right outcome will be found. It has taken quite a while and that certainly causes us consternation. But we are hopeful.

Ravi Rajagopal: The forensic audit is a matter for Fortis, not IHH. The Delhi HC has said that hearings would commence on December 6, and would like to hear all parties to the issue on the need for forensic audit. The SC suggested that the Delhi HC may consider the need for a forensic audit – it has not mandated it, as per the language of the ruling. Fortis will argue that we don’t see the need for a forensic audit – because of the various statements made by the SC in its ruling, where they said prima facie there is a business case for a buyback of the assets.

Equally, during the four years of arguments by various parties, I don’t think any evidence has been produced which would suggest that something else was going on in the buyback of assets.

The new Fortis board executed the buyback following a shareholder approval that happened a year prior to the buyback, because it made economic sense to reduce the interest cost, which was significant then, and was constraining Fortis in terms of its cash flows. So there was a real economic need, all shareholders at that time were unanimous – I think more than 99 per cent of shareholders approved the buyback and even a year later, when it was actually done, the feedback we got from shareholders and analysts was extremely positive that we did this for the right reason.

Dr Loh: IHH entered India some years back through smaller acquisitions. We are doing well in India - I want to reiterate that the transformational entry really happened in 2018, when we made the Fortis acquisition.

Ravi Rajagopal: It’s a completely different matter of Daiichi pursuing its claims in the Indian courts. We hope they find redress in their efforts. What we find somewhat disappointing is that their efforts to come after Fortis in trying to redress their claims, which we feel has no relevance. When the arbitration award was contested in the Delhi HC (possibly 2017) and in later proceedings – in none of this Fortis was named as a party of interest or implicated in anyway. But suddenly in December 2018, soon after the IHH transaction, Daiichi tried to put a stop to our efforts to increase the shareholding of IHH through the tender offer and that’s been frustrating for us - because we don’t see a connection between Fortis and Daiichi’s efforts against the former promoters.

Ravi Rajagopal – We had filed with the stock exchange, we had also filed with the SC during the course of the hearings. – of our intent to change the brandname. We are now going to move ahead with our plans and change the name into Parkway for Fortis. In the coming months, you’ll hear more on the plans to roll out the change.

Ravi Rajagopal: The real untold story is the way Fortis has transformed itself in four years. Despite the uncertainty and constraints of lack of capital.

In 2018 – perhaps for the first time in indian corporate history, institutional shareholders took effective control of the company and brought in a new board. And the new board set about the task of cleaning up the books, carrying out investigations into whatever had happened in the previous many years , filing with various regulatory authorities and instituting action for the recovery of dues against the concerned parties, launched a publicly transparent auction process to invite a strategic investor - and the unique thing about it was the criteria for the selection of a successful bidder was put up on the stock exchange. Finally, when the bidder was chosen on the unanimous recommendation of two investment bankers, the basis of the selection was also put out on the stock exchange website, and that resulted in IHH coming in.

It was also clear to all, that had a strategic investor not come in at that stage – with the intention of bringing capital – Fortis would have very well gone bankrupt. That would have meant 22,000 people who were employed in running its 27-odd hospitals, the SRL diagnostic business – their future was at stake. There was more than Rs 2,000 crore to banks and lenders that was also hanging in the balance because interest payments had been frozen, because of lack of cash, there was rental payments due to the lease of the hospital assets to RHT – which was also stayed because of cash – from that we came to a situation where over the last four years – three things have happened – a turnaround in the fortunes of Fortis because of the injection of capital, because of the collaboration and synergies of IHH and the completely new management that the board brought into Fortis and that has seen losses / PAT of Rs 1,100 crore in March 2018 to plus Rs 100 crore in March 2022.

We invested more than Rs 1,000–Rs 1,200 crore in capex and bed expansion – through internally generated cash and at the same time reduced our borrowings from over Rs 2,000 crore then to less than Rs 800 crore today. All the bank loans were repaid in full without a waiver or any kind of haircut – we now have a fresh set of lenders .

There’s been a transformation of a company and business pretty much what the IBC process would desire but without going through the benefits of an IBC process - which gives you protection from past litigation and past legacy claims. Sadly, we have done exactly what that would have intended, but faced the brunt of all these historical issues, .and that’s extremely unfortunate and for me personally frustrating.