IHH Healthcare taps Sebi door for Fortis open offer

Mumbai: IHH Healthcare Berhad is believed to have approached consultations with authorities including the stock market regulator to explore ways to proceed with its planned open offer to acquire an additional 26% stake in Fortis Healthcare, said people in the know.

A ruling last month by a Supreme Court bench headed by Chief Justice UU Lalit effectively implies that all the status quo orders on the Malaysian company's deal for the Indian hospital chain have been vacated, they claimed.

Sources close to market regulator Securities and Exchange Board of India said officials were independently examining if indeed the status quo stood vacated.

IHH and Sebi spokespeople did not respond to ET's detailed questionnaires till press time Wednesday.

In its September 22 order, the Supreme Court said: "Special Leave Petition (Civil) No.20417 of 2019, Contempt Petition No.2120 of 2018 in SLP (C) No.20417 of 2019 and Suo Motu Contempt Petition (C) No.4 of 2019 are disposed of." It, however, directed the Delhi High Court to decide on all the disputes related to IHH's deal to acquire Fortis and consider a forensic audit of the sale of Fortis shares held by banks and other financial institutions.

"Everything goes back to the executing court," Chief Justice Lalit said. "Needless to say that it shall be open to the executing court to pass such directions as the facts and circumstances presented before it may justify."

The Supreme Court had on December 14, 2018, issued an interim order stalling the open offer by IHH.

Several legal experts said if a petition gets disposed of, all interim orders get merged with the final order or stand vacated unless mentioned otherwise.

"How can the status quo order be valid, if the main petition under which it has been issued is no longer in effect and is in line with legal jurisprudence (which means to say that it is only the final order which applies to the parties and not any interim orders passed earlier)," said a person on the condition of anonymity. "It therefore becomes clear that with no status quo order in effect, the open offer should go ahead."

In a March 2022 order, the person said, the Supreme Court had observed that “once the proceedings, wherein a stay was granted, are dismissed, any interim order granted earlier merges with the final order”.

In other words, the interim order comes to an end with the dismissal of the proceedings. “In such a situation, it is the duty of the court to put the parties in the same position they would have been but for the interim order of the court, unless the order granting interim stay or final order dismissing the proceedings specifies otherwise,” it had said.

“The judgement by the honourable Supreme Court of India supports our belief that our investment into Fortis was undertaken in a fair and transparent manner; and secondly, the SLP, the original contempt petition and the suo moto contempt petition are disposed of with a direction to the high court to inter alia consider issuing appropriate process and appointing forensic auditor(s) to analyse the transactions entered into between Fortis and RHT and other related transactions,” IHH said in a statement on the day of the judgement, which also saw the Fortis stock get routed 20%.

“For the mandatory tender offer for IHH to acquire an additional 26.1% stake in Fortis, IHH is obtaining further advice and is in discussions with relevant authorities to determine the next steps, in full compliance with all requisite regulations in India,” it had said.

Currently, IHH is the largest shareholder in Fortis with a 31.1% stake. It has thus far spent and earmarked 7,000 crore for the acquisition, including the amount kept in escrow account pending court clearance. Additionally, the Malaysians have invested 700 crore in operational capital expenditure and to repay 2,700 crore of bank loans. But its expansion plans are stalled due to the legal proceedings.

SEBI ROLE KEY
Sebi’s role, said analysts tracking these developments, would be key as in the past it had urged the Supreme Court to allow the Malaysian healthcare provider to proceed with the open offer and had become a party to the case. The regulator said in its special leave petition that the open offer was mandatory under India’s takeover code as the investor holds a 31.17% stake after having subscribed to a preferential allotment of shares in November 2018.

The regulator said IHH Healthcare had completed the transaction before a Supreme Court decision freezing the Fortis-IHH deal in December 2018. A stay on the open offer is not in the interests of public shareholders, Sebi said in the SLP filed on January 22. “The open offer ought to be proceeded with, in the interests of the shareholders of Fortis Healthcare Ltd, who are entitled to, if they so desire, exit the company by accepting the offer, in accordance with the relevant provisions of the Takeover Code, 2011.”

The Fortis stock has seen correction since the original offer was made in 2018. At the time, Fortis had said it would make a preferential allotment of shares to IHH for a total of 4,000 crore at 170 apiece, which was a premium of about 20% to the then market price. IHH was to make a mandatory open offer of up to 3,300 crore to buy up to 26% more from Fortis’ public shareholders. That could have taken its stake to as much as 57%.