GIC, KKR buy 42.5% stake in Philippines' biggest hospital chain for 35b pesos

Singapore

SINGAPORE'S sovereign wealth fund GIC and private equity giant KKR will take a 42.5 per cent stake in the Philippines' largest operator of private hospitals and healthcare services, Metro Pacific Hospital Holdings (MPHH).

MPHH's parent, infrastructure conglomerate Metro Pacific Investments Corporation (MPIC), on Tuesday announced it is selling part of its stake in the healthcare group to the KKR-led consortium for a total of 35.3 billion pesos (S$937.6 million).

The deal values the hospital chain at some 83 billion pesos or US$1.61 billion - almost triple what it was worth in 2014 when GIC made its initial investment, based on The Business Times calculations.

It also comes as MPIC, which currently owns 85.6 per cent of MPHH, has shelved its initial public offering (IPO) plans for the healthcare group.

Under the definitive agreements inked for the deal, the consortium will subscribe to 41.4 million new shares in MPHH, equivalent to a 6.25 per cent stake worth 5.2 billion pesos.

The consortium will also invest in 30.1 billion pesos of convertible bonds issued by MPIC. The bonds can be exchanged for 239.9 million shares or a 36.25 per cent stake in the hospital chain, either within 10 years or at an IPO by MPHH, whichever is sooner.

MPHH in September filed for an IPO to raise up to 83.3 billion pesos or US$1.6 billion at a maximum price of 182 pesos per share. On Tuesday, MPIC said it is postponing the IPO, although a stock market debut may still be considered "after further development of business".

Under the deal, GIC will restructure its existing investment in MPHH and reinvest alongside KKR. Each of their resultant holdings in the health group were not disclosed.

In 2014, the sovereign wealth fund, through its private equity arm, invested 3.7 billion pesos to acquire a 14.4 per cent stake in MPHH, then known as Neptune Stroika Holdings. That valued the hospital chain at around US$583 million.

GIC in 2014 also took up 6.5 billion pesos in convertible bonds issued by MPIC, which could potentially be exchanged into an additional 25.5 per cent stake in MPHH. On Tuesday, GIC did not disclose whether those bonds had been redeemed or converted.

MPIC said on Tuesday that the proceeds from the 6.25 per cent stake sale will finance the hospital chain's potential investments in additional hospitals and new healthcare businesses. The capital will also be used to grow MPHH's existing subsidiaries, associates and joint ventures.

MPHH operates the biggest private hospital and healthcare network in the Philippines in terms of authorised bed capacity and revenue, with interests in 14 hospitals and about 3,200 beds nationwide. The fresh funding will enable the group to expand to 30 hospitals and 5,000 beds before 2030, said Augusto Palisoc, MPHH president and chief executive officer, on Tuesday.

Meanwhile, proceeds from the convertible-bond issuance will help reduce MPIC's bank borrowings.

The deal is expected to be completed by the end of this year. Conditions precedent include obtaining corporate approvals as well as regulatory and third-party consent, approvals and confirmations.

KKR will make the investment from its Asian Fund III, while GIC is participating through an affiliate.

MPIC and GIC's financial advisers are Bank of America Merrill Lynch and UBS, and their legal counsels are Milbank and Picazo Buyco Tan Fider & Santos. KKR's legal counsels are Simpson Thacher & Bartlett and Sycip Salazar Hernandez & Gatmaitan.