BASED on the written judgment by the Supreme Court of India (SCI), the Suo Moto Contempt Petition and the connected proceedings is disposed of, and the court has concluded no wrongdoings by IHH Healthcare Bhd.
To recap. IHH acquired a 31.1% stake in Fortis in November 2018, triggering a mandatory takeover offer (MTO) to acquire an additional 26.1% stake. However, IHH was caught in the crossfires between Daiichi Sankyo Co Ltd and the Singh brothers when the former filed a lawsuit to recover an arbitration award of over US$500 million (RM2.33 billion) from the latter.
Following that, the SCI has issued a status quo order in Decem- ber 2018, preventing all parties involved from taking any further actions, resulting in the Fortis open offer being put on hold.
Verdict. The SCI has disposed of the matter as no wrongdoings by IHH was discovered in the process and the SCI supports the belief that IHH’s investment in Fortis was done in a fair and transparent manner.
Note that IHH acquired Fortis’ shares by way of new shares subscription, instead of purchasing the shares from the open market or by purchasing the Singh brothers’ pledged shares in the bank. Based on IHH’s previous investigations, the Singh brothers were also no longer shareholders in Fortis when the transaction took place. That said, the written judgement did state that the acquisition of RHT by Fortis may institute forensic audit review, but only if the High Court deems appropriate.
Next steps. IHH remains committed to serve the India market, and has initiated discussions and seeking advices from authorities, regulators and legal counsels pertaining the outstanding MTO. On IHH’s end, relevant documents are ready to be filed once there is clarity on the next steps.
Forecast. Following our recalibration in the balance sheet items, our forecasts for FY22-FY24f is lowered by 6%-12%, given the higher expected depreciation and amortisation charges going forward.
Maintain ‘Buy’, TP: RM7.75. Our SOP-derived TP of RM7.75 remains unchanged as IHH’s hospital operations are valued based on EV/ Ebitda, which is not affected by the change in depreciation and amortisation charges. We continue to like IHH for its refreshed strategy to support sustainable growth and the management’s commitment to continuously seeking out new growth opportunities.
▶ Recommendation: Buy Target Price: RM7.75 by Hong Leong Investment Bank Bhd (Sept 28)
- This article first appeared in The Malaysian Reserve weekly print edition.