HONG KONG -- China's third-largest private hospital group, Guangdong Kanghua Healthcare, plans to raise up to 1.2 billion Hong Kong dollars ($154 million) via a stock listing next month, looking to finance ambitious business expansion.
The group intends to float 84 million shares Nov. 8 on the Hong Kong Stock Exchange. The indicative price range stands at HK$11.60 to HK$14.50 apiece.
"We are looking to own 15,000 beds and 30 hospitals in the future," Wang Junyang, chairman of the Guangdong-based medical services provider, told reporters Wednesday, though he did not specify a time frame. "We are having a professional team exploring merger and acquisition opportunities across China."
The company currently operates only two hospitals in the city of Dongguan -- the comprehensive flagship Kanghua Hospital and the more mass-market Renkang Hospital -- totaling 2,486 registered beds as of April. The group therefore decided to reserve 35% of its net proceeds from the initial public offering to acquire other hospitals.
"We intend to target small and medium-sized hospitals with 300 to 500 beds," the company said in its share-sale prospectus, expecting these institutions will be "less clinically complex and significantly smaller in scale than Kanghua Hospital."
The 13-year-old regional health-care group, whose profit growth has hovered in the low teens over the past three years, realizes that its development inevitably will be "limited by demographics" in the long run. Its solution is to build "a hospital network" that allows scalability, as well as adding more high-end and complex treatments as Chinese consumers demand more sophisticated services.
Guangdong Kanghua Healthcare, which amassed 118.96 million yuan ($17.5 million) in net profit last year, is not alone in riding the wave of privatization in China's health-care sector.
Rici Healthcare Holdings, a Jiangsu-based body-check center operator, and China Resources Pharmaceutical -- the country's No. 2 drugmaker -- were among the mainland Chinese medical companies to publicly offer shares in Hong Kong for the first time over the past few months, raising HK$1.02 billion and HK$14 billion, respectively.
The state-owned drugmaker said it would use 45% of its net IPO proceeds to buy pharmaceutical manufacturers and distributors, with each deal no less than 50 million yuan. Its affiliate China Resources Healthcare took Phoenix Healthcare, a large-scale private hospital group listed in Hong Kong in 2013, under its wing in August to form a mega-group of 104 medical institutions comprising clinics, community health-care centers and hospitals.
Confronted by a rapidly graying population, the Chinese government aims to expand its health-care services industry to 8 trillion yuan by 2020, and double that size by 2030, a State Council notice issued Tuesday said. Private capital, both foreign and domestic, will be indispensable. Apart from actual funding needs, increasing demand from Chinese consumers for better services also allows private investments to make inroads.
"There's a crisis of confidence in China's public hospitals right now," Shaun Rein, founder and managing director of market intelligence firm China Market Research Group, told the Nikkei Asian Review. "Chinese are concerned about corruption, about being overprescribed of medicine -- so wealthier consumers, especially, are moving toward private hospitals or overseas."
"I expect that going forward you're going to see the market dominated by the private sector and the big tier-one level public hospitals like Ruijin, Huashan, Jishuitan," Rein said. "The secondary, tertiary public hospitals are going to have problems competing."
The rivalry will be intensified as foreign players increasingly join the fray, Rein said, highlighting Parkway Pantai under Kuala Lumpur-based IHH Healthcare, and United Family, a U.S.-Sino joint venture. "They compete at the very high end, and they do very well," he said. "I think [the Chinese] trust foreign-owned chains more than local chains. But the key is they want to make sure they get a Chinese-speaking doctor."
Singapore's state investment firm Temasek Holdings said last week it pledged $250 million in a joint venture with the Chinese arm of Columbia Pacific Management, a Seattle-based health-care provider. This followed a deal in March by Boston-based private equity firm Bain Capital, which bought a large majority stake in Asia Pacific Medical Group for $150 million as the hospital operator, founded by Michael Choy and a group of U.S.-based physicians, looks to expand in China's tier-one cities.
But Rein also noted that China's health-care sector has yet to be fully liberalized as the government is careful "to keep the most profitable part within the public hospitals."
"If it's complex, expensive [treatments], foreign players can't get the permit," Rein said, citing cardiovascular-related treatments. He believed that would create a several-billion-dollar-per-year medical tourism market in the near future.
"[The Chinese] want the private hospitals," he said. "They like the foreign brands. They can't always see it in China because of regulations. But they have the money, they are willing to go to Japan, Hong Kong, United States and United Kingdom for their treatments."