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Published on: June 28, 2020, 10:45 p.m.
Pushed to the brink
  • Share price of the company in rupees

By Sumit Ghoshal. Contributing Editor, Business India

Healthcare Global Enterprises (HCG) is possibly the largest chain of cancer hospitals in India. It has saved the lives of millions of cancer patients over the years. However, its financial performance since 2015, for which records are available in the public domain, is far from impressive. It has booked losses for most of these years and has been unable to pay dividends to its shareholders during this time.

Now rapid, capital-intensive expansion of facilities and the compulsions of the Covid-19 pandemic have nearly pushed it to the brink. Hence, it is one of the very few listed healthcare companies that have not announced their Q4 results for FY20. Instead, the company management has decided to make a massive preferential issue of shares to CVC Capital, a well-known private equity investor. Thus the company has avoided the usual approach of a Follow-on Public Offer which many companies would do in similar circumstances. As a consequence, the deal appears like a takeover – although neither party has described it that way.

Before the share allotment decision, HCG had a capital base of about 88 million shares of which the promoter group including, Dr B.S. Ajai Kumar, the founder-chairman was holding about 23.9 per cent, while the ‘public’ holding was about 76 per cent. This encompassed about 17.56 per cent owned by seven Indian mutual funds and 25.05 per cent by 31 foreign portfolio investors. The remainder of the public shareholding is in the hands of individuals or organisations, each of whom owns less than 5 per cent.

Huge deal

The present issue comprises 29.51 million equity shares and 18.56 million warrants (each representing one equity share), all of which would be issued to Aceso Company Pte, Singapore and its associated companies for a consideration of Rs130 per share. This brings the total proceeds of this part of the deal to Rs624.91 crore. At this stage, the capital base of the company will expand from 88 million to 120.61 million shares of face value Rs10 each.

In addition, the acquirers would soon be making an open offer for 32.61 million equity shares, also for a price of Rs130 per share. This will be made to the public shareholders of HCG. Along with Aceso Company, the other participants in the deal are: Aceso Investment Holdings, CVC Capital Partners Asia (PACs).

When this entire deal including the open offer is completed satisfactorily, CVC and its associates will be in possession of approximately 56 per cent of the expanded capital, while additional funds of Rs625 crore would come into the company. Side by side, the equity holding of Kumar will be reduced from 19.94 per cent before the sale agreement to about 14.5 per cent. “However, I shall continue as executive chairman,” he told Business India recently. He also said a part of the sale proceeds would be used for retiring a ‘significant part’ of the company’s debt. Interestingly the net debt at the end of Q3FY20, calculated after adjustment as per Indian AS (accounting system), Rs1,312.1 crore – up from Rs1,220.7 crore at the end of Q2 (that is 30 September 2019).

The HCG management is a cancer care provider in all its dimensions, that is surgery, radiation therapy and chemotherapy but the dice has been loaded against it right from the start. For one thing, its service offering is not unique because almost each of the 25,000 medium and large multi-specialty hospital in the country has a cancer department. Hence HCG with its 22 cancer treatment centres (with approximately 2,000 beds), including three multi-specialty hospitals surely does not cater to a majority of cancer patients in the country.

Even then, the company management has no plans to shift its focus away from cancer care to include other medical conditions. Right now they are making plans to divest Milann, HCG’s wholly-owned subsidiary which offers IVF or Assisted Reproduction services in several parts of the country.

However, with a PE investor holding a majority stake in the company, it is quite likely that management control may soon slip out of the hands of the original promoters. Then HCG may develop into a completely different avatar! That however is something only time can tell.

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