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Clouds Over Hospital Chain Fortis Keep Suitors From Making Higher Bids

Analysts, bankers and consultancy firms say Fortis, with around 30 hospitals, mostly in large cities in a country that lacks good public healthcare facilities, an established brand and good roster of doctors, is a rare and attractive asset in a market that is growing strongly

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Fortis Healthcare Ltd has received as many as five offers for control of its private hospital business, but suitors have so far held back from making bold bids for the group as it faces rising debt and a regulatory probe.

Fortis, one of the country's largest hospital chain operators, is evaluating offers from domestic and international firms including Malaysia's IHH Healthcare BHD, which runs hospitals in India, Turkey, Malaysia and Singapore, and China's Fosun International Ltd.

Analysts, bankers and consultancy firms say Fortis, with around 30 hospitals, mostly in large cities in a country that lacks good public healthcare facilities, an established brand and good roster of doctors, is a rare and attractive asset in a market that is growing strongly.

But it has lately struggled with insufficient cash and growing debt, while regulators investigate allegations that its founders took funds without board approval. The founders, who have since left the company, deny wrongdoing.

"All interested bidders are aware that Fortis is in dire need of funds and that there could be contingent liabilities in the books of the company," said Shriram Subramaniam, founder of proxy advisory firm InGovern.

"That is the reason they may be unwilling to increase their bids without proper due diligence which the company seems to be reluctant to allow."

All five bids on the table value Fortis within a tight, relatively modest range of $1.2-$1.4 billion.

In the past five years, Fortis recorded lower revenue growth compared with its peers, according to Thomson Reuters data. While the healthcare services sector clocked a median revenue growth of 16.6 percent, Fortis grew at 13.6 percent.

Fortis' stock, which has barely moved since news broke in late March that it was close to a deal with rival hospital operator Manipal Healthcare Enterprises Pvt Ltd and Manipal's backer TPG Capital, has lost more than a third of its value since peaking in May last year.

Fortis' shares closed at 149.65 rupees ($2.26) on Friday, only slightly below the offers that value the company between 150 and 165 rupees per share.

The stock trades at 36.6 times forward 12-month earnings, a discount to its own five-year average of 63.3 and the peer average of 41.6.


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