Religare Health Trust kicks off $448 million Singapore IPO

The business trust is sponsored by Indian hospital operator Fortis Healthcare and promises a dividend yield of at least 6%. Meanwhile, electronics retailer Courts Asia starts bookbuilding for an IPO of around $100 million.
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Fortis Healthcare's colorectal centre in Singapore is the first of its kind in Southeast Asia
<div style="text-align: left;"> Fortis Healthcare's colorectal centre in Singapore is the first of its kind in Southeast Asia </div>

Religare Health Trust (RHT), a business trust sponsored by India-listed hospital operator Fortis Healthcare, has started bookbuilding for a Singapore initial public offering of up to S$550.4 million ($448 million).

The deal could become the second-biggest listing in Singapore this year after Far East Hospitality Trust, which raised $527 million through an IPO in mid-August, and will give Southeast Asia another boost in its quest to beat Hong Kong as the most active region for Asian IPOs this year. Based on the IPO activity in the first nine months of this year, this is a competition that Southeast Asia looks to be winning quite comfortably thanks to a couple of large IPOs in Malaysia (a third one is due to price this week) complemented by a handful of mid-sized deals in Singapore and the Philippines.

The funds raised through new listings have also boosted the total equity capital markets deal value in Southeast Asia to a record $21.4 billion for the first nine months of this year. According to Dealogic, this is 46% more than in the same period last year and the highest nine-month volume for this region ever. China, which has been the key driver of ECM activity in Asia during recent years, has seen just $25.9 billion of deals outside the domestic A-share market so far this year.

In addition to RHT, a second Singapore company — home electronics and furniture retailer Courts Asia — also opened the institutional order books for a Singapore IPO on Monday. That deal is significantly smaller at just S$120.2 million to S$137.1 million ($98 million to $111 million), but because the company is currently owned by a group of private equity investors, the listing has attracted quite a lot of interest and, according to sources, slightly more than 50% of the deal was pre-placed with six cornerstone investors.

RHT does not have any cornerstones, but the five bookrunners had prior commitments from a number of anchor investors and together with a healthy inflow of orders from yield-hungry private banks yesterday, the deal was largely covered in the first two days. Given that RHT has a fairly complicated structure one might have expected investors who haven’t been involved in the anchor process to require a bit more time to get their heads around the deal, so the early interest is encouraging.

The trust will give investors exposure to India’s fast-growing healthcare sector, although it doesn’t operate most of the hospitals in its portfolio itself. Rather, its key business is to invest in, develop and manage a number of healthcare assets, including clinics and hospitals, which are then operated by Fortis Healthcare. In return, RHT will receive a basic fee plus a share of the revenues at each of the assets, which will translate into a healthy dividend yield of at least 6% for its investors.

The IPO comes a couple of months after the successful listing of IHH Healthcare in Malaysia and Singapore in early July, which put the Asian healthcare sector firmly on the radar screen of investors. IHH is an owner and operator of hospitals primarily in Malaysia, Singapore and Turkey, which makes it a bit different to RHT’s revenue-sharing business model. However, the underlying drivers, such as the growing need and demand for healthcare services, the increasing ability by a growing middle class to pay for these services, and a market that is under-served by public healthcare facilities, are largely the same for both businesses.

At the time of listing, RHT’s portfolio will comprise 11 “clinical establishments” that all have hospitals that are operated by Fortis Healthcare, two hospitals that it operates on its own and four greenfield clinical establishments. Development of the greenfield projects will kick off in 2013 and 2014 and they are expected to start operations in 2015 and 2016.

The portfolio has a combined value of Rs32.6 billion, or S$748 million (approximately $620 million), based on a valuation by Cushman & Wakefield as of the end of June. A second valuation made by Grant Thornton Corporate Finance at the end of August puts the combined value of the assets slightly higher — at between S$758 million and S$781 million.

RHT is aiming to sell 72% of the trust to public investors in the form of 567.455 million units. They are offered at a price between S$0.88 and S$0.97 each for a total deal size of S$499.4 million and S$550.4 million ($406 million to $448 million). The price range translates into an annualised dividend yield of 6% to 6.6% for the fiscal year to March 2013 and 6.2% to 6.7% for the fiscal year to March 2014.

RHT has committed to pay out 100% of its distributable income in those first two fiscal years and at least 90% thereafter. The distribution to public investors will also be enhanced in the period until March 2014 as the sponsor has waived its right to a dividend during that time. This will increase the yield to 8.5% to 9.1% for fiscal 2013 and to 8.7% to 9.3% for fiscal 2014 and means there will be a significant drop in dividends after the first two fiscal years.

Fortis Healthcare will own 28% of the units in RHT at the time of listing and has committed not to sell any units during the first six months and no more than 50% of its total holdings during the following 12 months.

The sponsor, which is 81.5%-owned by entities linked with its promoter, Religare Enterprises, has a track record of more than 10 years of hospital operations and acquisitions. It currently provides healthcare services through a network of 75 hospitals with more than 12,000 beds, as well as 600 primary care centres, 194 specialist day-care centres and more than 230 diagnostic centres across 10 countries in the Asia-Pacific region. Aside from India, its major markets include Singapore, Australia, New Zealand and Vietnam.

The hospitals in RHT’s portfolio currently have 1,782 beds in operation, although the installed bed capacity is 3,197. This will increase further when the greenfield projects are completed and, in addition to that, the trust also has a right of first refusal to any healthcare infrastructure assets that its sponsor is looking to sell, offering a ready growth pipeline for RHT and a continuing opportunity for Fortis Healthcare to monetise its healthcare assets.

RHT will pay S$520.7 million to buy the initial 17 assets from its sponsor. At the maximum price, the net proceeds will be enough to cover this, but if the IPO is priced at the bottom of the range, the trust will also draw down S$50 million from two loan facilities provided by DBS and Standard Chartered. Including the units that will be retained by the sponsor, this gives an implied acquisition cost of between S$716.2 million and S$734.7 million.

Investors who want a more direct exposure to the healthcare sector in India have the option of buying shares in Fortis Healthcare, although the yield offered by RHT is likely to attract investors who want a lower-risk alternative at a time when global markets remain volatile and highly news-driven. RHT is also the first Singapore-listed vehicle to offer exposure to healthcare in India.

CIMB, DBS, Nomura, Religare and Standard Chartered are joint global coordinators and bookrunners for the IPO.

Courts Asia
Meanwhile, Courts Asia is aiming to sell 31.8% of its enlarged share capital in the form of 178 million shares. Of the total, only 34% are new, while the remaining 66% are existing shares sold by Singapore Retail Group, which represents a group of private equity investors, including Baring Private Equity. There is also a 10% overallotment option that may increase the total proceeds to as much as $122 million.

The shares are offered at a price between S$0.675 and S$0.77 each, which translates into a price-to-earnings ratio of nine to 10.3 times for the fiscal year to March 2013. For a consumer retailer that doesn’t sound particularly demanding, so it is perhaps not too surprising that there was good demand for the cornerstone tranche.

Depending on the final price, the cornerstones will buy between S$64 million and S$70 million of the deal, while S$51 million to S$59 million will be placed with other institutional investors. A small portion, S$6 million to S$7 million, will be offered to Singapore retail investors. The cornerstones include Asia Courts’ CEO and CFO, who have held only a small portion of the company since it was taken over by private equity firms. The two of them will invest a combined S$11 million. The rest will be split in equal parts between JF Asset Management, New Silk Road Investment, Target Asset Management and Value Partners.

The company, which has retail stores in both Singapore and Malaysia, will keep the order books open until next Monday when it is also planning to fix the price. The trading debut is scheduled for October 15.

HSBC is the sole bookrunner.

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