Malaysian conglomerate Sunway Bhd has sold a 16% stake in its healthcare unit Sunway Healthcare Holdings to Singapore’s sovereign wealth fund GIC for 750 million ringgit ($180 million), which will help the company add more hospitals to its network.
The agreement, which values Sunway Healthcare at close to 4.68 billion ringgit ($1.12 billion), followed the evaluation of proposals from various domestic and international investment funds, sovereign wealth funds as well as private equity firms, said Sunway founder and chairman Jeffrey Cheah during a virtual press conference on Wednesday.
Maybank Investment Bank Bhd acted as the sole financial advisor to Sunway on this transaction.
Sunway Healthcare managing director Lau Beng Long said the participation of GIC augurs well to support the expansion of its existing hospitals as well as the establishment of new hospitals and ancillary healthcare businesses across the country over the next four to five years.
He elaborated that the proceeds from the investment will be used to fund its plans to build six hospitals, ambulatory care centres, and traditional Chinese medical centres, on top of retiring some of the company’s outstanding loans.
Currently, Sunway Healthcare operates two tertiary hospitals, with a combined capacity in excess of 800 beds and more than 400 consultant specialists. The expansion is expected to increase the capacity to approximately 3,000 beds.
The capex requirement to build the four to six new hospitals could range up to 2 billion ringgit for the next three to four years. This means that almost 40% of the requirement will be funded by GIC’s equity injection, Sunway Group chief financial officer Chong Chang Choong said.
GIC’s equity contribution to Sunway Healthcare will be in the form of four different tranches over a period of three years. This will reduce the weighted average cost of capital for Sunway to fund its expansion, while also allowing GIC to benefit from the deferment of the equity injection, Chong added.
IPO plans
“We have the money, experience, brand, licence, and the land [to execute the expansion]. We promise to deliver this on time and hopefully do an IPO down the road,” said Cheah.
“In the eventual IPO, which will take place in the next six to eight years, the newly built hospitals would have reached a fairly mature stage and contribute significantly to the healthcare group’s profit. This will help us to unlock the equity value once the listing exercise is carried out,” he added.
GIC would then have the option to exit or stay invested to enjoy potential capital appreciation, said Chong.
The Sovereign Wealth Fund has an established track record in healthcare and health-related sectors globally, with investments across public and private markets in the US, Australia, Brazil, Philippines, China, and Vietnam.
Last year, GIC led a consortium of investors to acquire a minority stake in Vietnam-based private hospital operator Vinmec for $203 million. A year prior, it joined a consortium led by private equity firm KKR & Co to acquire a 42.5% stake in Philippines-based Metro Pacific Investment Corp’s hospital unit.
Amit Kunal, GIC’s head of direct investments group (Southeast Asia) of private equity said Malaysia’s healthcare sector will benefit from several trends such as an ageing population, the expansion of rising middle class, robust healthcare insurance penetration, as well as a resumption in healthcare tourism.
Malaysia’s healthcare market is expected to grow by 127% to 127.9 billion ringgit ($30 billion) in 2027 from 56.3 billion ringgit ($13 billion) in 2017, according to Fitch Solutions Macro Research. Before the pandemic, in 2019, the country attracted 1.3 million international healthcare tourists with a total of 1.7 billion in hospital receipts.
Sunway’s healthcare division was identified as one of the group’s fastest-growing, according to its 2020 annual report. The division posted a revenue of 620.3 million ringgit in FY2020, a 6.1% increase from the preceding year due to higher contribution from Sunway Medical Centre Velocity.
Sunway Healthcare also operates ancillary healthcare businesses, namely Sunway Specialist Centre Damansara, Sunway Medical Centre Singapore, Sunway Traditional and Complementary Medicine Centre as well as Home Care.
The group is slated to launch Sunway Sanctuary, which comprises 500 suites for senior living which will be sitting right above Sunway Medical Centre in Sunway City.
The group suspended the trading of its shares on Wednesday on account of the stake buy announcement. On Tuesday, the counter closed up 2.3% at 1.78 ringgit. The group had a market capitalisation of 8.78 billion ringgit on Bursa Malaysia.
