Sale of Fullerton Health draws eight non-binding bids in 1st round: sources

Singapore

SIX years since Fullerton Healthcare Corp (Fullerton Health) ditched its much-publicised plan to list on the Singapore Exchange, its owners have put the corporate healthcare solutions firm on the block, even as signs of liquidity strain threaten to cloud its prospects.

But while healthcare-focussed firms seem all the rage now owing to the Covid-19 pandemic, the sale of Fullerton Health may be facing setbacks, particularly valuation-wise due to among other things, its somewhat complicated capital structure, The Business Times (BT) understands.

Another wet blanket, according to market sources, is that potential investors are unconvinced by the managed care firm's key pitch - a "block buster" 2020, which is its best showing in a decade, that was chiefly led by the Philippines operations thanks to the pandemic - and the sustainability of that outbreak-driven growth story.

Sources say the process is currently "midway" and that Fullerton Health has drawn eight bids in the first round. The firm is majority owned by SIN Capital Group led by David Sin - he is Fullerton Health's executive deputy chairman and group president - and also counts China's giant insurer Ping An Insurance (Group) and duo Michael Tan and Daniel Chan, the firm's executive directors, as shareholders.

"Since the non-binding offers were received, the selected parties are meeting the management team for a deeper dive into the firm," said one source, adding that there has also been interest from third-party SPACs (special purpose acquisition companies) in recent weeks.

According to a report issued last month by credit market intelligence firm Reorg, citing sources, Apollo Global Management, Baring Private Equity Asia, Blackstone Group, CVC Capital, EQT Partners, KKR & Co, and Platinum Equity Partners were among the parties that have sussed out the firm on a preliminary basis.

It is uncertain if they will stay on for the next round in the sale of Fullerton Health, which describes itself as a "pan-regional platform" and offers corporates - its key customers - everything from health insurance plans and access to a network of healthcare providers for employees and administers healthcare, employee benefit plans and claims processing; it also provides primary care and diagnostics.

As reported by news wires, the sale of the medical services firm's operations in China, Singapore and the Philippines, is being advised by the Bank of America Corp.

One party that may have significant sway in the sale process is RRJ Capital - a Hong Kong-based private equity (PE) firm co-founded and led by Malaysian brothers and the region's prominent dealmakers Richard and Charles Ong.

In fact, Mr Richard Ong, who is chairman and CEO of RRJ Capital, also sits on the board of Fullerton Health as non-executive director.

RRJ Capital's role in the firm is unbeknown to many. BT has learnt that Mr Richard Ong joined the board after the PE firm lent its heft and subscribed to Fullerton Health's US$175 million senior perpetuals issued last April, the proceeds of which were used to redeem its US$175 million senior perps issued back in 2017.

The 2017 issue was then touted as "ground-breaking", as Fullerton Health was not only the first Singapore company to tap the US market but also the first Asian healthcare firm to print a US-dollar perpetual.

This was not the first time RRJ Capital had backed the firm. In 2018, it picked up Fullerton Health's S$330 million convertible preference shares (CPS), according to a source close to the healthcare firm. The proceeds raised from that exercise was used to partly fund its acquisition of the Philippines' second largest managed care player Intellicare Group. The buyout must seem spot-on after a pandemic-hit 2020, which has turned up the volume on the group's Ebitda, said the person familiar with the firm.

But it's hard to please everyone. "The Philippines is a 'Covid' play. The firm had a nice bump from the Philippines last year as it benefitted from the shutdown and it's using that to sell the firm. What happens when things go back to normal?" asked one observer.

Indeed, since Fullerton Health abandoned its listing plan on the SGX, which was mired in controversy amid anonymous complaints to the regulators over its business practices, it has managed to raise funds through a string of hybrid debt instruments. SIN Capital has also listed a SPAC, SC Health, on the New York Stock Exchange.

In July this year, Fullerton Health's S$50 million publicly-traded Singapore dollar bonds will reach maturity. The debt papers are part of a two-tranche S$100 million bond offering (the other S$50 million tranche is due in 2023), backed by the Credit Guarantee and Investment Facility (CGIF), a trust fund of the Asian Development Bank.

In the company's FY2019 accounts, the company's auditor Deloitte highlighted a "material uncertainty relating to going concern" on the back of increased liquidity risks owing to debts due up to July this year. More recently in February this year, Fullerton Health's management said in a revised 2019 financial statements issued on the SGX that the group will have sufficient cash to fulfil obligations up to Jan 2022, adding that it was confident in obtaining additional funding. Hence, the management concluded that no material uncertainty exists over its ability to continue as a going concern for at least the next twelve months.

Mr Sin continues to be busy raising cash. Just this month, SIN Capital inked a deal to sell a building at 108 Robinson Road to PGIM Real Estate-linked entities for nearly S$143 million, BT understands.

The 12-storey freehold office block, formerly known as Finexis Building and also listed as Fullerton Health's "principal place of business" or "executive offices" in certain offering documents, was fully acquired by SIN Capital's linked firms via two deals collectively worth S$105 million in 2011 and 2014.

Another "integrated luxury healthcare hospitality development" project in Bideford Road called Orchard Hills - SIN Capital's flagship project - is "mostly vacant", said one real estate watcher. The mixed-use freehold development located opposite The Paragon was the Thong Sia building site when it was acquired by SIN Capital in 2015 for S$380 million. A source close to the project said the serviced residences is slated for launch in August this year.

Some market watchers say the recent goings-on could signal that the firms connected to Mr Sin, including Fullerton Health - a firm he is credited for transforming from a Singapore-centric entity to a pan-Asian platform since he emerged as majority owner in 2012 - are facing some financial strain.

However, one source close to the firms dismissed this notion, adding that these asset sales were a "natural" next step. "It's a 10-year investment horizon. It's very natural to want to exit the investments after owning the assets for that long," said the source.