This article first appeared in The Edge Financial Daily on September 18, 2019

KUALA LUMPUR: IHH Healthcare Bhd is buying Prince Court Medical Centre Sdn Bhd (PCMC) from its substantial shareholder Khazanah Nasional Bhd for RM1.02 billion cash.

The acquisition came slightly more than a year after Khazanah’s wholly-owned unit Pulau Memutik Ventures Sdn Bhd (PMV) bought the hospital operator from Petroliam Nasional Bhd (Petronas) for RM1.086 billion cash. PMV holds a 26.04% stake in IHH.

The deal between Khazanah and Petronas was sealed in March last year and completed in August. At that time, Khazanah had entered into a term sheet for a collaboration agreement with its dual-listed healthcare unit IHH Healthcare to improve PCMC’s operations.

The price that IHH is paying is slightly below Khazanah’s investment costs. IHH noted in a statement yesterday that the fair market value range of 100% of the equity of PCMC is between RM960.7 million and RM1.08 billion as at March 31, 2019.

IHH said that its wholly-owned unit, Pantai Holdings Sdn Bhd (PHSB), has signed a conditional share purchase agreement with PMV for the purchase of the stake comprising 100 million shares and 35,176 redeemable preference shares in PCMC.

The acquisition will be funded via a combination of internally-generated funds and bank borrowings, IHH said in a filing with Bursa Malaysia.

IHH said the acquisition is expected to contribute positively to the group’s future earnings and cash flow.

Based on PCMC’s latest audited financial statements for the financial year ended Dec 31, 2018, it registered a profit after tax of RM51 million, while its net assets stood at RM486.1 million.

IHH noted that the proposed acquisition will allow the healthcare provider to strengthen its position in the Malaysian private healthcare segment and broaden its service offerings.

“We are pleased to be adding Prince Court Medical Centre to our existing network of 15 hospitals across Malaysia,” said Dr Kelvin Loh, chief executive officer designate of IHH, in a separate statement.

“This is a rare opportunity to acquire an attractive and accretive asset in Kuala Lumpur’s ‘Golden Triangle’ that will strengthen IHH’s position in Malaysia while allowing us to capture the growing medical tourism market,” Loh added.

Prince Court is a licensed 277-bed private healthcare facility in the city centre. It offers a wide range of medical, surgical and hospital services, including burns management, cancer, gastrointestinal diseases, interventional cardiology, in vitro fertilisation, nephrology, occupational health, orthopaedic and rehabilitation medicine, said IHH.

Separately, Khazanah said the proposed divestment will enable PCMC to fully benefit from being integrated into IHH’s Malaysian operations and its broader global network.

The sovereign wealth fund also said the exercise would strengthen IHH’s overall position in the domestic healthcare services market, with Khazanah’s continued contributions through its involvement in IHH.

“This transaction is in line with our refreshed mandate and provides Khazanah with the liquidity for our future investment capital requirements,” said Khazanah managing director Datuk Shahril Ridza Ridzuan.

“In addition, Khazanah is confident that PCMC will further benefit from IHH’s wealth of experience in providing premium healthcare, whilst solidifying IHH’s position as a leading Malaysian healthcare operator, where we remain as a substantial shareholder with a 26.04% stake,” Shahril said in a statement.

Barring unforeseen circumstances, the acquisition is expected to be completed in the first quarter of 2020.