IHH Healthcare raises $2 billion from IPO

The Malaysia-based hospital operator prices the deal near the top of the range, and the institutional tranche is more than 130 times covered.
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Mount Elizabeth, a Singapore hospital owned by IHH Healthcare
<div style="text-align: left;"> Mount Elizabeth, a Singapore hospital owned by IHH Healthcare </div>

IHH Healthcare has raised M$6.3 billion ($2 billion) from its initial public offering, after fixing the price near the top of the indicative range.

It is now the third-biggest IPO in the world this year after Facebook and Malaysian government-owned agricultural commodities company Felda Global Ventures, which raised $16 billion and $3.1 billion, respectively. IHH will have a dual listing in Malaysia and Singapore, which the company said will be the first concurrent IPO ever in the two markets. The trading debut is scheduled for July 25.

Following a successful IPO by Felda, IHH, which is backed by state-owned Malaysian investment company Khazanah Internasional, attracted huge investor interest from the onset. The company signed up 22 cornerstone investors which together took up about 62% of the base deal, and the whole deal was covered soon after bookbuilding was launched last week, sources have said.

With the large cornerstone tranche in place, the institutional portion was rather small, comprising 138 million shares or 6.2% of the deal. Based on the final price, it amounted to about $121 million.

The deal drew strong demand, with more than 400 accounts in the book, and the institutional tranche was more than 130 times covered, a source said yesterday. Demand came from domestic and foreign long-only investors, hedge funds and healthcare specialists.

As part of the base offering, IHH sold 2.2 billion shares for M$2.80 each, after marketing at between M$2.67 and M$2.85 each. A total of 80.5%, or 1.8 billion shares, were new. The remaining 19.5% were secondary shares that were sold by Abraaj Capital, the former owner of the Acibadem hospital in Turkey, which was paid partly in shares when IHH bought the business. Abraaj sold its entire stake through the IPO.

Malaysia, where ample domestic pension money helps support offerings, has been a bright spot for IPOs recently. In an encouraging sign for IHH, Felda is currently trading more than 17% above its IPO price of M$4.55 since its listing debut on June 28. Malaysia’s stock market has also been on an uptrend, with the FTSE Bursa Malaysia KLCI Index up about 6% since the start of the year.

In the cornerstone tranche, Malaysia’s Employee Provident Fund Board has committed 200 million shares, or about 8.95% of the total pre-shoe offering, and the Kuwait Investment Authority took 150 million shares, or 6.7% of the deal. Other cornerstone investors include AIA Group, Blackrock Investment Management, The Government of Singapore Investment Corp and IFC.

The retail tranche comprised 208.5 million shares for the Malaysian public offering and 140.6 million shares for the Singapore public offering, together accounting for 15.6% of the deal. The retail price is the same as the institutional price of M$2.80 per share, and it is S$1.113 (M$2.8) each for those applying for the IPO under the Singapore offering, the company said in a statement yesterday.

The retail tranche was also oversubscribed, the source said.

The Ministry of International Trade and Industry took 360 million shares, or 16.1% of the deal, which it placed to Bumiputera institutional and selected investors.

The base offering represented 27.7% of IHH’s enlarged share capital.

The transaction comes with a 7.6% greenshoe option, which could increase the deal size to M$6.7 billion. The 169.4 million greenshoe shares are secondary, and will be sold by Khazanah.

Prior to the transaction, Khazanah had a 62.1% stake in IHH and Japan’s Mitsui & Co owned 26.7%, while Middle East-based investment firm Abraaj Capital and the Aydinlar family owned 7% and 4.2%, respectively, according to a syndicate research report.

The price range valued IHH at a 2013 enterprise value-to-Ebitda multiple of between 15.2 times and 15.9 times, based on bank research. That comes as a premium to other regional hospital operators, such as Singapore-listed Raffles Medical Group, Bangkok-listed Bangkok Dusit and India’s Apollo. Though smaller, they have been trading somewhere between 12 to 15 times.

Given IHH’s size, as well as its geographical exposure, the Malaysian company deserves a premium to these companies, and investors appeared to be comfortable with the valuation, one source said last week.

IHH will use about 90.9% of the money raised to repay bank borrowings.

IHH currently has more than 4,900 beds in 30 hospitals, as well as medical centres, clinics and other healthcare businesses across eight countries in Asia, the Middle East and Eastern Europe. Most of the beds are located in Malaysia, Singapore and Turkey — countries that the company refers to as its home markets. However, it will add a further 3,300 beds during the next five years, including the new Mount Elizabeth Novena hospital in Singapore, and will add about 333 beds by the end of 2013. The growth will come from new hospital developments as well as expansion of its existing facilities.

Bank of America Merrill Lynch, CIMB and Deutsche Bank are global coordinators and bookrunners. Credit Suisse, DBS, and Goldman Sachs are joint bookrunners.

¬ Haymarket Media Limited. All rights reserved.
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