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IHH to take 31% stake in Fortis, bid for another 26%; could spend 73.5b rupees and up

IHH Healthcare Bhd is poised to take control of cash-strapped Fortis Healthcare as it emerged the winner in a months-long bidding war for India's second-largest private hospital chain.

In a regulatory filing during a trading halt on Friday morning, Singapore-listed IHH said it could spend more than 73.5 billion Indian rupees (S$1.47 billion) to acquire a majority stake in Fortis Healthcare through a subscription and general offer.

The Malaysian firm's wholly owned subsidiary NTK has agreed to subscribe for 235.3 million new Fortis shares, or a 31.1 per cent stake of Fortis's enlarged share capital, for 40 billion rupees through a preferential allotment. At 170 Indian rupees (S$3.39) per share, the offer stands at a 19.5 per cent premium to Fortis’ closing price on Thursday.

Under terms of the deal, IHH will also make an open offer to acquire an additional 26 per cent interest for at least 170 Indian rupees, which would work out to about 33.5 billion rupees in total for the open offer.

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IHH will also offer to buy up to a 26 per cent stake in Fortis listed subsidiary Fortis Malar Hospitals, an operator of clinics and hospitals, for 48.9 million rupees, or 10 rupees per share.

The move could propel IHH to lead the pan-Indian market by operating more than 5,400 beds in 37 hospitals, said IHH in a Singapore Exchange filing.

"The proposals represent an opportunity for IHH to further expand its growth footprint in India, given India’s tremendous growth potential with the rising demand for quality private healthcare," it said.

As at end-March 2018, IHH operates 1,600 beds across six hospitals and three medical centres. It has hospitals throughout Malaysia, Singapore, India, China, Brunei and United Arab Emirates as well as integrated healthcare services across 21 hospitals in Turkey, Bulgaria, Macedonia and Iraq under a 60 per cent owned unit. 

"Accordingly, IHH does not foresee any material change to the risk profile of the IHH Group’s businesses as a result of the proposals as the IHH Group is already exposed to the inherent risks in the premium healthcare provider industry," it said.

IHH said it expects the deal to be completed in the fourth quarter of 2018 and does not expect it to have any material effect on earnings for the fiscal year ending Dec 31.

The bidding war for Fortis began earlier this year after its founders, brothers Malvinder and Shivinder Singh, lost their shareholding due to debt, and allegations that the Singhs had improperly taken funds from the company. 

IHH beat out three other players in the takeover battle: Hero Enterprise Investment Office and the Burman Family Office consortium, a consortium of Manipal Health Enterprises and the private equity firm TPG and KKR-backed Radiant Life Care.

Fortis' board had in early May previously accepted a proposed 18 billion rupees (S$359 million) offer from the Hero-Burman consortium following a five-cornered takeover fight for the cash-strapped firm, but shareholders opposed the decision later that month which led to the company reopening the bidding process.

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