Fortis clearly needs liquidity urgently; would keep business intact, says Sunil Munjal
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
Sunil Munjal said Fortis was a good quality and geographically well-diversified asset, a day after making an unsolicited, Rs 1,250 crore offer for the healthcare company, along with Anand Burman. About Rs 500 crore would go into Fortis regardless of due diligence, and about Rs 750 crore would go into fortis based on due diligence, Munjal …
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Sunil Munjal said Fortis was a good quality and geographically well-diversified asset, a day after making an unsolicited, Rs 1,250 crore offer for the healthcare company, along with Anand Burman.
About Rs 500 crore would go into Fortis regardless of due diligence, and about Rs 750 crore would go into fortis based on due diligence, Munjal told CNBC-TV 18.
“Fortis clearly needs liquidity on an urgent basis,” he said. He also speculated if Fortis had an offer that would get the healthcare chain the kind of liquidity his bid was offering, in a limited timeframe.
Asserting that Fortis needed stability and liquidity at the moment, he said did not know what his share of the holding would be, and added that it would be linked to the price.
He also said he did not know if the hospital group would engage in restructuring after a deal, but added that it could become a compulsion for Fortis.
Anand Burman also echoed Munjal’s thoughts and said he would prefer that Fortis not split up its business, and added that the company needs people with a long-term perspective. He also said the Manipal offer prioritises a demerger of Fortis.
Both Munjal and the Burmans, in a joint bid, have approached the board of Fortis Healthcare proposing to invest Rs 1,250 crore in the company.
Key risks at Fortis are SFIO investigation on alleged fund diversion, and Daiichi Sankyo’s legal case against Singh brothers.
In view of these risks and liabilities, the Manipal bid was structured as an asset sale, rather than a company merger.
“Probe is underway in what happened in the past at Fortis healthcare. Very public transaction taking place in a public listed company. Daiichi has lodged cases against promoters so possibility of legal risk on Fortis is minimal,” Sunil Munjal told CNBC-TV18.
The fight for Fortis Healthcare has intensified further, with three suitors in the fray. Manipal Hospitals backed by private equity player TPG were the first one to express interest.
In the offer letter to the board of Fortis Healthcare, both Sunil Kant Munjal and the Burman family, who are already existing shareholders in Fortis Healthcare, have proposed to infuse funds, which, according to Munjal, “will go beyond addressing the urgent liquidity needs of the company and help the operations stabilise with immediate effect.”
Read more: IHH makes non-binding offer for Fortis Healthcare
Sunil Munjal Chairman, Hero Enterprise & Anand Burman Chairman, Dabur India, discusses in an Interview CNBC TV18 discusses the reason behind the move and their future plans.
Edited Excerpts
Nisha: Your earlier attempt to acquire Fortis Healthcare has failed. What gives you the confidence that this time your interim investment of Rs 1,250 crore in two tranches after due diligence is going to make the cut, especially with Manipal transaction in a very advanced stage and in exclusivity at this point?
Munjal: Right now, Fortis needs liquidity at an urgent basis and what we have offered is something that will be helpful to the entire system and can be triggered and actioned very quickly. I am not sure they have any other option or offer that allows them to get this kind of liquidity and to complete a transaction in this efficiency and the timeframe that we are talking about.
Burman: The other issue is that at least in the Manipal offer, the first thing is to demerge the hospital business from the rest of the company. We are saying, the company should remain intact and we will invest into the company directly.
Ekta: Do you want to become the promoter of Fortis with 18.3% stake that eventually you will have post the Rs 1,250 crore investment?
Munjal: First we don’t know what the percentage would be because that will depend on the price at which the shares get issued. Right now, we are looking at this as an investment. We believe at this moment, the company needs both liquidity, stability and an ability to manage itself to move forward from the little bit of a logjam that it appears to be in at this moment.
Ekta: You continue to have an investment in Fortis to the tune of around 15-20%, if there is a parallel promoter that comes in with a restructured deal, the likes of IHH or a Manipal, would you still be open to being an investor with another promoter in the company?
Munjal: I am not sure, the company — once it gets its liquidity and is back on track— needs to restructure itself or do anything else in a hurry because it is a good quality asset, it is well-diversified in geography, it has good quality talent, it has very good equipment, so it just needs the ability to use its potential to expand itself to achieve its real potential.
The restructuring would almost come in as a compulsion because of the kind of offers that the company had received, I am not sure that is the best option for any working company to start to restructure itself unless there is a good reason for it.
Burman: Not only that, but to formulate a strategy for the company at this very early stage would be a wrong thing to do.
Nisha: Is this an interim arrangement in the absence of a promoter of Fortis Healthcare where there is no single largest shareholder who can take the call and where you want to come in, have a board seat? And when there are are big players such as IHH as well as TPG Manipal come you can make a good return out of this investment, is that something conceptualised with this particular offer?
Munjal: You should know that we do not take short-term calls. All the investments that we have made have always been long-term investments and we believe this is a place, which deserves and needs an investment that will help it to remain stable.
What happens in the long-term future, I cannot say it today, but it is clearly an investment we are making because we think this is both – it helps the healthcare system in the country. It also helps the second-largest healthcare system, which in some sense was floundering right now. Both of us have deep interest in healthcare and this is both an opportunity and in some sense a public service.
Burman: At this stage, the company needs people in there, investors in there, who have a long-term perspective and are not just looking to the next quarter.
Ekta: This additional Rs 750 crore is contingent or due diligence. So in the next three weeks if you don’t like what you see on the books, that additional Rs 750 crore won’t come in, it is a non-binding offer?
Munjal: Rs 500 crore as it is written in the offer, goes in regardless of anything else and the Rs 750 crore clearly is dependent on diligence and we have said we will do the diligence very quickly because we don’t think there is a lot more that one can do in this much time than take a fair look at what is going on in terms of its size and scope etc.
There have been issues around this company for which certain enquiries have already been raised. So at some point those reports will also come in. So there will be enough diligence out there available overtime. So we are making this call because we believe in the asset and the company and frankly as I said, the need to both retain and encourage a good quality healthcare system.
Ekta: Just on that specific point, one of the reasons why Manipal restructured the deal in the way they did was to circumvent the legal liability that they might face from the likes of SFIO probe or anything that might happen in terms of allegations of siphoning of money. In your sense, are you ready to take on the risk that might emerge from an SFIO probe or an internal audit that is underway?
Munjal: The probe are underway for what has happened in the past and not with what is going on right now or will happen in the future. Our attempt is to see how one can stabilise the present and build a better future. So I think any of the regulatory authorities, investigating authorities are very aware of what is going on and this is a very public situation, this is a public transaction in a publicly listed company. So there is no backend channel, there is no secret transaction going on. So it is so open, everybody will know if we are investing, we are investing today. So our role as investors in this entity expands from the little bit of share we had to a larger amount that we will be getting hopefully as this transaction gets concluded.
Nisha: The similar risk factors come in from the Daiichi legal tangle as well and that was precisely the biggest reason why a restructured deal only for sale of assets was conceptualised by Manipal TPG away from the merger, which they had earlier thought of. So in this case, you are taking a direct stake and a substantial one making you the single largest shareholder of Fortis Healthcare. If any such risk comes, won’t you be putting your investors also at a big risk?
Munjal: Our understanding of what is going on is clear, Daiichi has pointed a finger at or has lodged cases against the earlier promoters of this company. It is not to do with the company itself and since there shareholding of this company now is well below 1%, the possibility of the case reaching this entity or anybody connected this entity right now is frankly very minimal to zero.
Burman: We have also been given legal advice that we are fairly insulated from any action that Daiichi may or may not take.
Nisha: Would you be also open to tying up with another strategic player for buying out the whole of Fortis Healthcare once this offer is accepted?
Burman: I think we have see what is in the best interest of the company and shareholders, we, both Sunil Munjal and myself, will do exactly that. What is in the best interest of the company and of the shareholders and of all the stakeholders for that matter whether employees, doctors, medical, non-medical professionals, shareholders and definitely the patients. The patients come first and that is what this company is there for. So whatever is in the best interest of the company, we will do that.
Ekta: I just wanted to expand on that point, what is the kind of experience in healthcare that you all can bring to the table and why would it be a better fit with you all as opposed to a company such as say the likes of Manipal or IHH, which have run hospitals previously and are doing so in the Indian market?
Burman: That really is a very moot point in terms of we are. At the end of the day we are minority shareholders in there and we would like to propose whatever is best for the company. Just because we have not run – actually Sunil has run one of the biggest hospitals in the whole country.
Munjal: Both Anand and I have been involved in healthcare in more than one aspect. Anand is involved in looking at diagnostics, he is involved in oncology, and their firm has been in not directly running hospitals but on the periphery they have been involved in pharma for a very long time. I had the DMCH in Ludhiana, which is one of the largest teaching hospitals in the country. It has more than 1,500 bed hospital with multiple super specialities and medical college and a nursing college. So, we do have experience.
Plus don’t forget we have run very diversified operations in many ways. We understand how a large and diversified enterprise is managed. In this case, we are minority shareholders, so we will certainly like to give suggestion and ideas as shareholders. We are not actively running the business
Ekta: On that point there is a chance that you might even become the majority shareholder for Fortis, so let us not rule that out. One of the things, which is a big concern for Fortis and it has been for a long time is the trust holding in Singapore, the RHT in Singapore RHT Holdings, which holds around 11-12 odd properties and there is a fear that you need to secure that as soon as possible or else there could be trouble in terms of the hospital business. Have you thought of any plans on account of that?
Munjal: The RHT transaction as you are aware, again this is a public knowledge, the company has signed an agreement to buyback the assets from that trust. Plus I don’t understand your question as why would there be trouble. It is a financial transaction where some of the assets were owned by the trust and for which the trust actually gets paid. So, if they remain there, the company has to continue to make the payment. If the company buyback the assets, the pay outs to the trust would stop. So, there is a pro and cons on both sides but it is not nothing to do with trouble. It is a business and a financial decision to treat it one way or the other.
Ekta: So the understanding is that the RHT would continue as per what it is currently continuing?
Munjal: I am not saying one way or the other. What I am saying is this will be a business decision that the company has to take in its own interest whether it wants to continue this arrangement or whether it wants to buyback the assets because in any case the company has now already signed an agreement to buy the assets back. So, it is purely a financial arrangement. It is nothing more than that.
Nisha: You will be putting in more finances apart from the debt repayment and when required for buying out assets and also for taking care of the operations, is there any plan of action on that one as well?
Munjal: We should stick to what is going on right now. We have made a very clear offer, it is very public, we have offered to invest Rs 1,250 crore into the company and we believe the company’s current situation requires liquidity. We also believe we are putting in more than the current requirement to allow the company to do all the right things – to clear their overdues with creditors, to make sure employees are being compensated on time, to make sure any bank dues are being paid, so that the company can actually focus on what it matters – the healthcare is actually the core of what this is. It is not just a plain business, it is a social service as well. You have to ensure that the care portion in this gets the highest focus and that is our attempt to take away what we believe right now is a constraint that is there which is dragging down some of the area that are otherwise critically important, so the doctors and the teams can focus on what really matters.
Nisha: As an investor and you already own 3%, so I understand your concern about liquidity position of the company. What makes you think that Manipal TPG which has given a definitive agreement has really not spoken to the lenders and not taken care of the liquidity position and the requirements in the interim if a deal is really going through?
Munjal: I don’t want to comment on what others are doing because that would be speculation. I can only tell you what we are thinking and the way we are approaching this. We do believe that this is a good quality asset, it has got good people in there, it has got a good team, we believe they can manage this asset well, it just needs the right support to focus on what really matters.
Nisha: We do understand that there is an exclusivity period in which TPG Manipal has entered into this agreement for. So, technically can the board really cancel and terminate that exclusivity and go ahead with your offer if they like your offer better? What is the technicality and the legality behind this?
Munjal: The board has the right to do what it believes is the right thing by the company. I presume the board will do what they are legally permitted and what is incumbent upon them as a responsibility to make sure the best option for all stakeholders of the company is the choice that they make but eventually it is not the board, it is going to be the shareholders who will take the decision.
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