This article first appeared in The Edge Financial Daily on October 10, 2018
IHH Healthcare Bhd
(Oct 9, RM5.29)
Maintain buy with a lower target price (TP) of RM6.36: IHH announced that Aydinlar (Acibadem’s founder, Mehmet Ali Aydinlar and his wife, Hatice Seher Aydinlar) and Bagan Lalang (a wholly-owned subsidiary of Khazanah) exercised their options to convert approximately 15% equity interest in Acibadem for 262 million new ordinary IHH shares each. In return, IHH will acquire an additional 30% equity interest approximately in Acibadem, bumping its stake to 90% from the existing 60%. Aydinlar and Bagan Lalang acquiring IHH shares requires Bank Negara Malaysia’s approval and is expected to be completed by end-2018.
The options were part of IHH’s acquisition agreement with Acibadem in 2011. The conversion for 262 million new IHH shares each was at the bottom-end range under the option agreement, ranging between a minimum of 262 million and a maximum of 393 million new shares. Mehmet Ali Aydinlar will continue to own a 10% stake in Acibadem.
While IHH ups its stake in Acibadem to 90% from 60%, the additional 524 million new ordinary IHH shares to Aydinlar and Bagan Lalang represent an enlarged share base of 6.36%. Ultimately, the impact is neutral to our IHH valuations as the higher stake is diluted by the enlarged share base. Over the near term, IHH could see larger non-core foreign exchange translation losses of its non-Turkish lira-denominated borrowings. — Affin Hwang Capital, Oct 9