Apollo Hospitals Sets Debt-Reduction Plan In Motion With HDFC Deal
The deal is the hospital chain’s first sale this fiscal as it seeks to reduce its net debt to Rs 2,500 crore by March 2020.
Apollo Hospitals Enterprise Ltd. is on the path to pare its debt after it sold its entire stake in Apollo Munich Health Insurance Company Ltd. to Housing Development Finance Corporation Ltd.
The Reddy family-run hospital chain will receive Rs 300 crore from the stake sale which is part of the deal where HDFC will buy a majority stake in Apollo Munich for Rs 1,347 crore, and ultimately merge it with its general insurance arm HDFC ERGO, according to exchange filings.
The deal is the hospital chain’s first sale this fiscal as it seeks to reduce its net debt to Rs 2,500 crore by March 2020 from the current levels of Rs 3,200 crore. The company had earlier said that it will trim its pledged shareholding by 50 percent by September. The company had also stated in its fourth quarter results announcement that it had assets that could be liquidated to reduce debt, including its holding in Apollo Munich.
The healthcare provider’s guidance for debt reduction stood at Rs 700-800 crore through a combination of divestment of its pharmacy business, sale of insurance business and a possible divestment of around 50 percent stake in its cancer treatment centre Proton, according to the company’s post-earnings conference call.
Kotak Securities’ Pharma Analyst Chirag Talati said that the company had highlighted a 40-50 percent reduction in pledged shares by September and a complete release of pledge by the end of financial year 2019-20 via another transaction.
The founders of the hospital chain had brought down the pledged component in their holding to 68 percent in the quarter ended March from 78 percent in the previous quarter. Citi Analyst Prashant Nair said in a note that if the founders follow their commitment to release all pledges by the end of FY20, then he expects it to lift a “big overhang” on valuations, which would then reflect the operating improvement in the business much better.
In a two-step deal today, HDFC said it will acquire 51.2 percent stake, or 18.39 crore shares, in Apollo Munich from the Apollo Group for Rs 1,346.84 crore. Apollo Munich is a 51:49 joint venture between Apollo Hospitals Group and Munich Health—Munich Re’s health business segment. Apollo Hospitals holds approximately 10 percent and Apollo Energy Ltd. holds 40.4 percent of Apollo Munich.