With Supreme Court Order, IHH May Have To Wait For Controlling Stake In Fortis

The Supreme Court today extended stay on the sale of controlling stake in Fortis Healthcare Ltd. to IHH Healthcare Bhd., nearly a month after it had ordered a status quo on the transaction.

This comes in a case filed by Japanese drugmaker Daiichi Sankyo alleging the former promoters of Fortis Healthcare—Malvinder Singh and Shivinder Singh—to have violated court orders. Hearing on the case, which was adjourned today, will now begin on Feb. 6, the court said, while seeking Daiichi’s view on Fortis Healthcare’s plea to lift the stay on the acquisition.

This will cast a shadow on Fortis Healthcare’s ability to borrow money, according to Param Desai, pharma analyst at Elara Capital. Desai said the hospital chain will find it difficult to secure loans under such circumstances, but the main impact will be on shareholders who wanted to tender in the open offer. “The stock will remain under pressure till the open offer is concluded."

Malaysia’s IHH Healthcare was named the owner of India’s second-largest hospital chain nearly seven months ago, and it infused Rs 4,000 crore in Fortis through a preferential share allotment. IHH already owns 31.2 percent in Fortis Healthcare and was to make a mandatory open offer to acquire an additional 26 percent, or around 19.7 crore shares, at Rs 170 apiece, to become controlling stakeholder.

Fortis Healthcare had indicated the stay was delaying IHH’s open offer and disrupting business as banks were hesitant to extend credit to the company. Lawyers for Fortis Fortis Healthcare had said the firm’s erstwhile owners, who face embezzlement charges, are no longer in control of the company.

Daiichi—which wanted to recover nearly Rs 3,500 crore ($550 million) from Fortis Healthcare’s erstwhile promoters—had sought court intervention to enforce a tribunal award that found the Singh brothers concealed critical information during the sale of their generic drug firm, Ranbaxy Laboratories Ltd., to Daiichi in 2008.

Fortis Healthcare and IHH are yet to respond to BloombergQuint’s emails.

Shares of Fortis Healthcare declined over 10 percent last year compared with the S&P BSE Healthcare Index’s 6 percent gain.

Analyst View:

JPMorgan

• While the IHH deal does end uncertainty that has plagued Fortis Healthcare over the last year, investors will need confidence in the medium-term margin trajectory before a re-rating, according to analyst Neha Manpuria.

Nomura

• Fortis Healthcare will benefit over time as its operations integrate with IHH, according to Saion Mukherjee, head of equities research.