Fortis Says Religare Health Trust Buyback Will Make It An Appealing Buyout Target
The buyback of assets from Religare Health Trust will make Fortis Healthcare Ltd. an even more appealing buyout target, according to Chief Executive Officer Bhavdeep Singh.
The hospital company is already in talks with potential investors, Singh told BloombergQuint in an interview. But “in the event that the transaction doesn’t take place, we certainly believe we can raise funding for it because the merit for it is strong,” he added.
Fortis plans to buy back assets from Religare Health Trust, for Rs 4,650 crore, funded via mix of debt and equity. That’ll help the company save Rs 270 crore on service fees and Rs 75 crore on interest costs. The erstwhile promoters Malvinder Singh and Shivinder Singh face allegations of siphoning off funds from the hospital chain and their financial services subsidiary Religare Enterprises Ltd.
Here are edited excerpts from the conversation.
What is your response to what the auditors have said?
The accounts were signed. There was a lot of noise around Deloitte signing or not signing Q2, etc. We had delayed results in Q2 and Q3. But the results were signed. In their concluding statements there are two or three things in light of which...and the potential materiality of those two or three things...that because they don’t know the impact of them, they cannot comment in that statement because of the potential impact. Having said that, they have signed the accounts and I think that’s an important statement whereby we have been able to release the results.
There is a company-mandated investigation that comes through an audit committee which has been initiated. In addition, SEBI is also looking at the matter. We believe that whatever the company has been requested by the audit committee and SEBI, whatever the investigation might yield, they are not only cooperative but very supportive of it. Because anything we would find will help us become a better company and help us do a better job is good for the organisation, patients, employees and all of us. Where we are today is we look forward to all the investigations being completed, so that we can close the matter and move forward. We will go back focusing on patients which what we do every day.
As per the audit report, close to Rs 70 crore or partial repayment has happened. What happens to the balance, when can we expect that to come in? What are the modes in which it will be refunded back to the company?
We are working on a repayment plan that’s been committed to us by the end of the first quarter. At this point, we have no reason to think that it won’t come in. We believe that it should be coming to us by end of June.
Why was this reported so late?
There was a change in the shareholding pattern of these entities at which point it became related parties. Beyond that, there are a couple of investigations going on. There isn’t a whole lot more that I can comment on. But as a matter of process, all over the world, good blue-chip companies at different times lend money to different places from an interest perspective. We did the same thing. There are some issues which potentially came up. We have investigations and we look forward to getting to the bottom of it. In addition, we look forward to a full repayment plan by the end of the first quarter.
In terms of these companies, what is the financial backing? What are the major assets that these companies have which makes you confident that the money will come in? Since the Singh brothers are no longer promoters, will there be additional pressure put on them to get this repayment done?
Any time any organisation lends money... If I lend money to a friend, the first thing I say is, does this individual have the ability to repay. So, there is a routine testing that’s done and on that basis these loans were given. As far as the Singh brothers are concerned, you have to ask them where they are and what they are doing. The assurance that was given to us has been that the funds will come back. We expect that to be the case.
Is the three-member committee now empowered to take decisions in terms of capital raising, roping in strategic players or looking at mergers and or equity transactions with healthcare companies, private equity players etc?
The committee is part of the board. The decision-making in those kinds of things are typically driven by the board mandate. The purpose of that committee is that in any organisation you have an executive chairman with executive responsibilities around it. It is those executive responsibilities that has been transferred to the committee and not the entire board mandate. Any possible engagement with potential investors, those discussion are continuing and the management plays a key role in it. Whatever ultimately is done in a case like this where we were thinking about what the future looks like and what kind of partnerships we have, the management will play a role in recommending or not recommending something. But the committee is the authority and responsibility of the executive chairman that no longer exists. But beyond that the board continues to perform its role.
Will the capital requirement for Fortis come only because they are looking at acquiring the balance shareholding in RHT or would you think there is a funding requirement for daily operations? What kind of funds will you require to buy the balance shareholding in RHT?
From an RHT perspective, there is good fundamental logic for what we are doing. There is an immediate impact on the P&L on an annualised basis, around Rs 270-280 crore on an EBITDA line with respect to the positive impact once you acquire it. We are looking at talking to different investors right now. It makes the asset more desirable. On a standalone basis...and this is not my opinion but what we continue to hear is that we are a very desirable asset, there is a tremendous amount of interest in Fortis and people want to be affiliated and partner with us. Completing the RHT transaction makes it all the more appealing. If the transaction didn’t take place for some reason because the level of interest is so high and the financial logic of the investment is so strong that while the best way to do this would be a potential investor coming in, we believe we can raise funding for it because the merit of it is so strong and because it drives additional cash flow and it helps grow the business.
Is there any communication which the bankers of RHT have communicated to Fortis Healthcare?
There is nothing here that is material, and which will impact the transaction in terms of how they are looking at it and how it will impact them. There is nothing that has been brought to our attention. We are aware that certain things kick in because of the shareholding change. But there is no impact to the transaction or the relationship. If there is any static on their side, it is question for them to answer. But we don’t see anything. We see RHT as a huge piece of our success story going forward. RHT structure was set up at a time with the expectations that we will grow this much, we will be international. Honestly, it is like a big ball around our neck right now. The quicker we can get rid of it, the sooner we will start running.
Who are the major other shareholders and do the Singh brothers own personal stake in RHT?
It is negligible. Beyond that from a shareholding pattern, you have to check with them.
Who are the large shareholders who will get the money that Fortis pays for RHT?
This is information which is not disposable, but it is readily available.
So you think that if a strategic investor comes in, could the transaction happen in one month?
We are not in urgent need of funds. The transaction will happen in a month is highly unlikely. The sooner it happens it is good, but I don’t see a call with you in 4 weeks to talk about the completion of a transaction.
Watch the full interview here.