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Nikkei Markets

IHH Healthcare to pause open offer post Fortis-buy in India

Awaiting directions from India's Supreme Court, capital markets regulator

Analysts said IHH Healthcare is likely to miss its earlier targeted timeline to complete the deal, which was slated to be mid-December.

KUALA LUMUR (Nikkei Markets) -- Malaysia's IHH Healthcare said Monday it will not be able to proceed with an open offer to buy an additional 26% stake in India's Fortis Healthcare until further notice from the south Asian country's top court and capital markets regulator.

IHH, Parkway Pantai and Northern TK Venture were not party to the proceedings before the Supreme Court of India, IHH Healthcare said in an exchange filing. The company is waiting for directions from the Supreme Court of India and the Securities and Exchange Board of India, it said.

The court order on Friday however does not impact previous share purchases that amounted to 31% stake in Fortis, and which was completed on Nov. 13, IHH Healthcare said. IHH Healthcare closed the acquisition for 2.35 billion ringgit ($562.6 million).

Analysts said IHH Healthcare is likely to miss its earlier targeted timeline to complete the deal, which was slated to be mid-December.

"We see limited risk to IHH's investment in Fortis being derailed as it has already completed its investment in Fortis," said Nomura Research analyst Raghavendra Divekar. IHH Healthcare is expected to start booking earnings from Fortis from the fourth quarter this year, he said.

IHH Healthcare's bid for the additional stake worth 33.5 billion Indian rupees ($468 million), or 170 rupees per share, was dealt a legal setback after India's Supreme Court put the sale of Fortis to IHH on hold.

Japan's Daiichi Sankyo sought a stay on the deal alleging the company's former shareholders, brothers Malvinder and Shivinder Singh, didn't fulfill certain commitments to pay the drug maker based on a lower court order.

IHH Healthcare said it is in the process of studying the court order and seeking legal advice that will subsequently decide on its future course of action.

The control of Fortis will allow the largest hospital operator in Asia to further expand its footprint in a vast market where spending for healthcare is surging. If the deal is successful, India could account for 24% of IHH's overall annual revenue, up from 6% currently, according to IHH's earlier forecast.

Interest in Fortis, which has a network of 34 hospitals across the country and overseas, has also been buoyed by a government announcement earlier this year to provide healthcare insurance to about half of India's more than one billion population.

However, the court's order will affect minority shareholders as they will not be able to exercise the open offer until the court lifts the stay, Hong Leong Investment Bank analyst Sheikh Abdullah wrote in an investor note.

"The IHH team are still working on buying back the assets, optimizing the operations and finance costs and instilling better corporate governance into Fortis," he said.

IHH Healthcare had in July agreed to buy a more than 57% stake in Fortis through a preferential allotment of shares and a mandatory open offer worth up to $1.1 billion in a bitterly-fought bidding war that drew interest from domestic and international investors.

Shares in IHH Healthcare closed down 0.9% at 5.32 ringgit apiece, while the benchmark FBMKLCI ended 1.2% lower.

-- Gho Chee Yuan

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