This article first appeared in The Edge Malaysia Weekly on May 17, 2021 - May 23, 2021
KHAZANAH Nasional Bhd managing director Datuk Shahril Ridza Ridzuan has dismissed talk of the state-controlled investment arm selling its 26.02% equity interest in IHH Healthcare Bhd to Japanese conglomerate Mitsui & Co Ltd.
In a short phone message to The Edge, Shahril says, “We [Khazanah] aren’t selling and there aren’t any offers to buy.”
He said this in response to speculation over the last couple of weeks that Mitsui, which holds 32.9% of IHH, was exploring a deal to take the hospital group private by acquiring the 67.1% equity interest it does not own.
With IHH’s current market capitalisation of RM49.07 billion, that 67.1% stake would cost Mitsui almost RM33 billion. And pegging a 20% premium to the market value of those shares would bring the sum to a whopping RM39.51 billion.
IHH’s share price had gained almost 9% or 46 sen to close at RM5.66 last Monday following talk of a potential takeover bid by Mitsui.
IHH is an attractive company with a foothold in 10 countries, including Malaysia, Singapore, Turkey, Dubai, India and China. The group’s assets include more than 15,000 licensed beds across 80 hospitals.
Some of the brands under IHH are Parkway, Mount Elizabeth, Gleneagles and Pantai. Acibadem Holdings, in which it has a majority stake, is Turkey’s largest private healthcare provider. IHH also has 31.17% equity interest in India-based Fortis
Healthcare Ltd following an acquisition worth US$584 million in 2018.
It should be noted that in November 2018, Khazanah sold a 16% stake or 1.4 billion shares in IHH to Mitsui for RM8.42 billion or RM6 per share. Since then, there has always been talk of the state-controlled investment arm divesting out of IHH, as its 26.02% stake is not the controlling block and, thus, it would not play a major role in charting the growth of IHH.
In 2018, Khazanah said, “This transaction [the 16% equity sale to Mitsui] forms an important part of the restructuring of Khazanah’s portfolio, and the proceeds raised will be utilised for new investments and capital requirements. Khazanah will continue to be a significant shareholder with representation on the board of IHH, and will provide stability to the shareholder base of IHH for the foreseeable future.”
Nevertheless, market talk has it that Mitsui, a giant corporation with a market capitalisation of almost US$39 billion (about RM160 billion), is looking to rope in partners in the form of private equity firms and could wrap up a deal to take IHH private by July.
The July deadline stems from rumours of Shahril making an exit from Khazanah in August, after three years at the sovereign wealth fund. But this remains speculation at best. Shahril reported for duty as managing director of the state-controlled investment arm on Aug 20, 2018.
A source familiar with the matter says, “Talks between Khazanah and Mitsui are ongoing”, but declines to say more. Several other sources, some of whom have ties with the ruling Perikatan Nasional coalition, have also hinted at Khazanah selling its 26.02% stake in IHH.
While IHH’s financials have been adversely impacted by Covid-19, its prospects remain bright. For its financial year ended December 2020, the hospital group chalked up a net profit of RM288.88 million from RM13.4 billion in revenue. In FY2019, it registered a net profit of RM551.48 million on the back of RM14.91 billion in revenue.
In the notes accompanying its financial results, IHH says the group’s FY2020 revenue and Ebitda decreased 10% and 13% respectively from FY2019 as the pandemic had resulted in patients postponing non-urgent treatments and visits to hospitals as well as adversely impacted foreign patient volume due to the travel restrictions.
On its prospects, IHH says, “The Covid-19 pandemic has presented unprecedented challenges to the global economy, across all industries including healthcare. The group is adapting to the new normal and seeking new opportunities amid this pandemic.”
As at end-December last year, IHH’s net assets per share stood at RM2.48 while its cash and bank balances amounted to RM4.19 billion. It also had retained earnings of RM4.25 billion and shareholders’ funds in excess of RM27 billion.
Meanwhile, the hospital group’s long-term debt commitments and short-term borrowings stood at RM8.66 billion and RM996.38 million respectively.
Amid talk of Khazanah selling its 26.02% stake in IHH, a market observer asks why the government-controlled sovereign wealth fund is divesting its shares at a time when the healthcare business is in vogue.
In March, Khazanah took some flak after news broke that it had sold its stake in Sea Ltd, the parent of e-commerce giant Shopee. It had invested US$170 million in 2016 (RM650 million at the time) for a 2.3% stake, but sold it for RM612 million in November 2019 — just before the surge in e-commerce, brought on by the measures taken to contain the outbreak of Covid-19, which would have increased the value of its stake in Shopee.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.