Affinity Health ponders ASX listing

An IPO is the only option for the exiting private equity owners.

Affinity Health, Australia's largest private hospital operator, has hired Citigroup and UBS to review its capital restructuring options, heralding a possible listing on the ASX. The move comes just 18 months after private equity investors bought the group of 53 hospitals from Mayne.

If Affinity Health lists it would be one of the quickest turnarounds in Australia's private equity history. "It's not often that an asset this big can be turned around in such short order," says a deal insider. "Most investors would sit on an asset for between three and four years before considering an exit."

With revenues of A$668 million and cash of A$103 million, Affinity is unlikely to be sold in a trade sale. "There aren't any large strategic buyers of hospitals left in Australia," says the insider. "Three years ago I would have said Mayne might be interested, but that clearly isn't the case now."

The IPO could tally A$1 billion making it one of the biggest in the primary markets pipeline. Affinity's owners - CVC Asia Pacific, Ironbridge Capital and the Singapore Government investment arm GIC - are clearly trying to take advantage of the bull run on the ASX. The market is up 4.7% since the beginning of the year despite talk of a slowdown.

Affinity issued a statement saying it had appointed Citigroup and UBS to consider options but no decision about the listing had yet been made. The statement is required because the company has hybrid securities listed on the ASX and falls under continuous disclosure rules.

The company's managing director, Robert Cooke, says if an IPO did occur Affinity would consider undertaking an early redemption of its hybrid notes paying A$106 per note with interest accruing up until redemption. The notes are now trading at around A$111.

Note holders would need to make a decision whether to accept the repayment or possibly participate in the IPO. Under the terms of the hybrids, Australian and New Zealand note holders are entitled to exchange up to 50% of their securities into equity at a 5% discount to the IPO price paid by retail investors. Cooke says the statement is "no guarantee that an early redemption will occur".

The private equity group bought Affinity from Mayne for A$817 million in November 2003. The company owns hospitals seven Australian states and three assets in Indonesia.

The Australian market has provided a good climate for private equity exits. Last April, CVC and Catalyst attracted bids from 175 institutions for their A$1.3 billion float of apparel company Pacific Brands. Tech Pacific, Just Group and JB HiFi were also offloaded last year.

One investment that was turned around quickly was Repco. Gresham Partners invested A$30 million in the management buyout of the car parts and accessories company in September 2001 and then in November 2003 listed it for A$136 million.

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