IHH Healthcare - DBS Research 2019-11-19: Back In Limbo

IHH HEALTHCARE BERHAD (SGX:Q0F) | SGinvestors.io IHH HEALTHCARE BERHAD (SGX:Q0F)

IHH Healthcare - Back In Limbo

  • The Supreme Court of India issued a suo moto notice of contempt to Fortis Healthcare for violating the Court order dated 14 Dec 2018
  • Fortis / Malar Open Offer on hold; management remains firm that the transaction was conducted in a fair and transparent manner after obtaining all approvals, and that ex-promoters were not in control; next hearing date is 3 Feb 2020
  • The uncertainty may create some overhang on share price. Nevertheless, we believe management remains committed and will exert its utmost effort to resolve this.
  • Fortis Healthcare contributes 18% and 10% to IHH HEALTHCARE (SGX:Q0F)’s 1H19 revenue and EBITDA respectively. Since IHH Healthcare’s takeover, Fortis’ profitability has improved while IHH Healthcare's share price has remained relatively flat.



The Supreme Court of India issued a suo moto notice of contempt to Fortis Healthcare

  • On 15 Nov 19, The Supreme Court of India (“Honourable Court”) issued a suo moto (“on its own motion”) notice of contempt to Fortis Healthcare for violating the Court order dated 14 Dec 2018.
  • The Supreme Court registry has been directed to register a fresh contempt petition regarding violation of the order of the Honourable Court dated 14 Dec 2018.
  • According to a statement issued by Fortis Healthcare - the Honourable Court has sought an enquiry into consummation of the acquisition of healthcare assets from RHT Health Trust by Fortis Healthcare. The Honourable Court has also sought an enquiry into whether the subscription by IHH Healthcare to the shares of Fortis Healthcare was undertaken after the status quo order was issued by the Honourable Court on 14 Dec18 and accordingly, if such subscription was in violation of this status quo order.
  • As such, the Fortis Open Offer as well as the Malar Open Offer (which is subject to the completion of the Fortis Open offer) will not proceed for the time being.


IHH / Fortis Healthcare’s current stance

  • IHH Healthcare remains committed to proceed with the Fortis Open Offer once the stay is lifted by the Supreme Court of India. IHH is seeking appropriate legal advice on this matter and will subsequently decide on the future course of action. The next hearing date for this matter is 3 Feb 2020.
  • The Board of IHH Healthcare has further clarified that the 31.1% of the Expanded Voting Share Capital of Fortis held by IHH Healthcare was acquired via (NTK) through a Subscription (i.e. through preferential allotment and not purchase or transfer of existing shares in Fortis), which was completed on 13 Nov 2018. Also, the Subscription was undertaken in a fair and transparent manner after obtaining the requisite corporate and regulatory approvals and in accordance with all applicable laws. This was also undertaken and completed after the ex-promoters of Fortis Healthcare were no longer in control of Fortis.
  • Fortis Healthcare remains firm that these transactions were, at all times, conducted in a fair and transparent manner after obtaining all relevant regulatory, shareholder and corporate approvals and only after making all due disclosures to public shareholders of the company and to the regulatory authorities, in a timely manner.
  • Fortis Healthcare seeks to present the facts before the Honourable Court to demonstrate that no part of the proceeds from the IHH Healthcare Transaction were paid to Mr Malvinder Mohan Singh and Mr Shivinder Mohan Singh (ex-promoters of Fortis Healthcare) and none of the promoters were in control of the company at the time of the IHH Healthcare Transaction.
  • According to IHH Healthcare’s management, the suo moto notice may impact Fortis Healthcare’s ability to obtain new financing for future expansion plans, however, management assures that current business operations (including existing debt facilities) will remain status quo.


Our views

  • While the ongoing legal proceedings may put on hold some of Fortis Healthcare’s restructuring / expansion plans until this issue is resolved, the bigger worries include
    1. whether the court could reverse the IHH Healthcare Transaction of acquiring 31.1% stake in Fortis Healthcare via a subscription of shares, and
    2. depending on the final judgement, any potential penalties imposed by the Honourable Court.
    Hence, the uncertainty may cause an overhang on the share price during this period.
  • Nevertheless, we believe management remains committed on its investment in Fortis Healthcare and will exert its utmost effort to resolve this.
  • We note that Fortis Healthcare contributes 18% and 10% to IHH Healthcare’s 1H19 revenue and EBITDA respectively. Since IHH Healthcare’s consolidation of Fortis Healthcare, Fortis Healthcare’s profitability has improved (from integration and cost savings) while IHH Healthcare's share price has remained relatively flat.





Rachel Lih Rui TAN DBS Group Research | Andy SIM CFA DBS Research | https://www.dbsvickers.com/ 2019-11-19
SGX Stock Analyst Report BUY MAINTAIN BUY 6.400 SAME 6.400



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