MUMBAI • Fortis Healthcare is seeking a cash injection of as much as US$790 million (S$1 billion) as part of its billionaire founders' talks to sell their stake in India's second-largest private hospital chain.
Brothers Malvinder and Shivinder Singh have been in talks with private equity firms for the past year to sell their 34 per cent stake in Fortis to pay down debt at their holding company, Fortis president Daljit Singh said in an interview on Thursday.
The deal could also include as much as 50 billion rupees (S$1 billion) of fresh capital for Fortis that would be used to partly finance the acquisition of its Singapore-based trust, announced in November.
Fortis is also exploring other structures for a capital infusion, which could result in dilution for existing shareholders, Mr Daljit Singh said from the company's headquarters in Gurgaon, outside New Delhi. Fortis has a market value of about US$1.3 billion.
Bloomberg reported last March that the Singh brothers were in talks with private equity firm TPG Capital and Kuala Lumpur-based hospital operator IHH Healthcare to sell Fortis.
The efforts to raise cash come at a difficult time for both Fortis and its owners. Fortis has struggled to remain profitable in recent years, caught between rising costs and government efforts to restrict what it can charge patients.
"Today, it's probably the least attractive investment proposition from a business point of view," said Mr Singh, who is not related to the founders, who are Fortis' largest shareholders. "You've got to be a dud to invest in healthcare."
Profitability has emerged as a key issue at Fortis and across India's private hospital space in the last year as the government imposed price controls on coronary stents and knee implants, impacting margins. Fortis shares have declined about 11 per cent in the past year.
Fortis reported a negative profit margin in the fourth quarter and 0.5 per cent for the first quarter that ended June. That makes Mr Singh's task of raising money for a hospital business more difficult, he said.
"When you aggregate everything together, we are not making money, or we are, at best, making low money," he said.
To counter those headwinds, Mr Singh said Fortis has engaged in a campaign of cost controls, cutting head office staff, standardising processes and finding ways to cut the time patients stay in the hospital.
He projects that in two years, the company's margin on earnings before interest, taxes and other expenses will go to around 20 per cent from 7.9 per cent last year.
Mr Singh said the the company's purchase of the Singapore-listed RHT Health Trust for an enterprise value of 46.5 billion rupees will work to increase the hospital chain's profitability and make the business more attractive to investors who see potential in India's largely-private healthcare sector.
The trust has acted as a kind of landlord to Fortis' hospitals.