Bangkok Dusit Medical Services, Thailand’s biggest private hospital operator, raised Bt10 billion ($331 million) through a zero-coupon convertible bond on Wednesday evening.
The deal is denominated in Thai baht but settled in US dollars. It has a five-year maturity with a three-year investor put and an issuer call at two-and-a-half years. It offers a 2% yield and converts at a 15% premium to Wednesday’s closing price of Bt18.3.
The amount Bangkok Dusit is raising through this transaction is roughly equal to the group’s planned yearly capital expenditure for 2014 and 2015, as it continues an aggressive expansion strategy. The group plans to grow its network to 50 hospitals, up from 31 today.
Indeed, it agreed the latest acquisition at the end of August: a Bt3.6 billion deal to buy the 151-bed Siriroj Hospital in Phuket.
Issuing a CB to international investors will help it to fund such acquisitions at half the cost of its existing baht-denominated debt.
Bangkok Dusit marketed the deal with a conversion premium of 15% to 20%, which represented a price range of Bt21.05 to Bt21.96, and priced at the investor-friendly end of the range.
Other deal terms were conventional. The issuer call is subject to a 130% trigger, the conversion price resets on standard dilutive events and dividend protection is offered above 55% of net profits.
Bank of America Merrill Lynch, Credit Suisse, Phatra and Siam Commercial Bank were joint bookrunners and joint lead managers.
Bangkok Dusit’s principal medical centres are Bangkok Hospital (including branches in Pattaya and Phuket), Phyathai Hospital and Samitivej Sukhumvit Hospital.
Thailand's political instability threatens revenues from medical tourists from Japan, the US and other rich countries, though the group is increasingly focusing on the country's growing middle class.
Politics aside, the group’s biggest challenge as it expands is finding enough qualified staff. Thailand has many advantages for medical tourists — costs are low, facilities are modern, Thai service standards are excellent and the beaches offer perfect recuperation — but there are too few doctors, dentists or nurses. And that could imply higher costs down the line.
However, growth remains an important goal in the face of rising competition. The start of the Asean Economic Community in 2015 will open the door to existing hospital groups in Malaysia, Indonesia and Singapore in particular. Being bigger brings cost advantages in terms of shared labs and centralised buying.
Bangkok Dusit also benefits from an experienced and disciplined management that has successfully funded the group's growth without impairing its balance sheet, as demonstrated once again by this latest round of funding.