IHH’s blueprint to revamp Fortis hits rough weather

Maitri Porecha New Delhi | Updated on March 01, 2019 Published on March 01, 2019

Tan See Leng, Non-Executive Director and MD of Fortis and CEO of IHH Healthcare

Delay in open offer, money stuck in escrow account prove stumbling blocks

Malaysian healthcare giant IHH's vision to revamp Fortis Healthcare Ltd (FHL) after it acquired the latter over two months ago, has now entered tricky waters. Top officials at IHH were visibly concerned about a huge tranche of their money, up to ₹ 3,400 crore stuck in an escrow account at a local Indian bank, since December last year, which is to be used to initiate an open offer. “This money was supposed to be used to initiate an open offer to shareholders with shares priced at ₹ 170 apiece in December itself. This open offer has not come through as the Supreme Court of India has stayed the deal until March 14,” said Tan See Leng, Non-Executive Director and MD of FHL and CEO of IHH Healthcare.

“Rs 3,400 crore is lying stagnant in escrow account without yielding any interest. IHH must have raised this money through borrowings and must be in turn paying a huge amount of interest in the meanwhile that their repayments may be pending ,” said an official from FHL citing anonymity.

In the face of this legal soup that IHH finds itself in, its ability to leverage investments from local Indian banks into the IHH-Fortis group's hospital business, remains a challenge, See Leng said. “Banks are reluctant to do anything unless legal issues are resolved,” he said.

IHH-FHL runs 25 hospitals across India now. With ₹ 3,400 crore stuck and no investments coming in, acquiring state of art technology has become as impossible as there is no money available to the doctors to pursue that cause, See Leng further said.

An official from FHL confirmed, “Many doctors are leaving FHL to join other corporate hospitals in the light of financial constraints. Poaching is rabid.”

The earlier over ₹4,000 crore infused by IHH into FHL to strengthen its sinking health, through preferential allotment, were completely utilised in buying back assets of Religare Health Trust (RHT) which owned a chunk of hospital businesses and had FHL as one of it's investors. “It was very important for us to get those hospitals back onto FHL's balance sheet,” said Shirish Moreshwar Apte, Vice Chairman of FHL.

In internal investigations into working of RHT, it was found that FHL had invested up to 27 per cent in RHT and that has been recovered. “Apart from this, close to 5,000 shareholders have a stake in RHT and as per our findings none of them are related to the Singh brothers or their companies,” stated Apte.

See Leng said that by bringing back hospital assets from RHT to FHL, rental leakage of close to ₹300 crore per year was being avoided. But Apte affirmed that forming RHT was a routine business decision taken way back in 2012, and that the current board did not want to dwell on the past as this decision was now being corrected.

On March 14, the Supreme Court has also asked ex-promoters of FHL – brothers Malvinder and Shivinder Singh to be personally present in court and file an affidavit to explain their stance on over ₹3500 crore that they owe to Japanese drugmaker Daiichi Sankyo and has until then stayed the open offer.

Shares of Fortis ended at ₹134.65 on the BSE on Friday and this would see a substantial boost for minority shareholders if the open offer were to come by, said See Leng.

See Leng also said, “We wish to set the record straight once and for all that we have got nothing to do with the brothers and Daiichi controversy. We however respect the decision of the Supreme Court.”

Published on March 01, 2019
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