In talks with Sebi for Fortis open offer: IHH CEO

IHH Healthcare Berhad is in discussions with stock market regulator Sebi to seek its permission and proceed with the much awaited open offer for Fortis Healthcare.

The company has initiated this after its legal advisors – senior advocate Harish Salve, law firms Karanjawala and Co, Saraf & Partners and other jurists – have given their opinion that as per the ruling by three judge-panel headed by Chief Justice UU Lalit on September 22, all prior status quo orders of the Delhi High Court stand vacated, thereby paving the way for the open offer, said senior executives of IHH Healthcare Berhad and Fortis.

Kelvin Loh, CEO, IHH Healthcare and Ravi Rajagopal, chairman of Fortis Healthcare, in an exclusive interaction with ET said the Supreme Court has disposed of the suo moto contempt petition. “And so right now, we are seeking the next path forward, talking to regulators, including Sebi to take next steps,” said Loh, who took over as IHH chief in January 2020. “We are in discussion with Sebi, I think we will wait the evolution of those discussions, and hopefully they’ll come soon.”

IHH is the largest shareholder in Fortis with 31.1% stake. It has so far spent and earmarked Rs 7,000 crore for the acquisition, including the amount kept in escrow account pending court clearance. Additionally, Rajagopal said that they have invested Rs 1,000-1,200 crore in the last four years in operational capital expenditure and to repay Rs 2,700 crore of bank loans. But its expansion plans are stalled due to the ongoing legal proceedings.

Clarifying further, Rajagopal added that the various petitions were vacated by the SC. “The opinion we got from our external counsels including our own, believe that then leads to a vacation of the status quo matters… but that wasn’t explicitly stated. And therefore in our view, the status quo no longer applies, and therefore, IHH is free to go ahead (with the mandatory open offer). And but out of deference to Sebi, IHH thought it is proper to just seek their concurrence.”

Sebi has not given a final view on the matter as yet.

ET in its October 13edition was the first to report about these discussions.

Talking about inducting a partner for Fortis, Loh told ET he gets several such inbound requests seeking partnerships but “at this point it’s too early for that. We have now reached a point where we feel confident that we can operate the assets well. We really wish that the matter would have gone through and that would have given us 51% stake. We are not in a business of selling or divesting shares.” He went on to add, “We are a strategic healthcare operator, where we buy something we really want to run it for good and can grow unless there is a real compelling reason as to why we will (onboard a partner).”

There has been speculation in the market that several local strategic and business groups have sent feelers to IHH. When asked specifically about Adani Group, Loh said “I would neither confirm or deny.”

As part of the September order, the apex court, however, also directed the Mumbai High Court to launch a forensic audit of Fortis’ dealings with RHT Health Trust, which owned some of Fortis’ hospitals. “Everything goes back to the executing court,” 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 order added. On December 14, 2018, the SC had issued an interim order stalling the open offer by IHH.

A forensic audit has also been sought to evaluate if the sale and lease back arrangements between Fortis and RHT were conducted at an arms length fashion. The court wants to evaluate if these sales were conducted at depressed prices and assets bought back at inflated rates considering that the then Fortis promoters – brothers Malvinder and Shivinder Singh and the former RHT CEO were related.

Defending the buyback, Rajagopal said, “ The first thing is even before I and the other independent directors came in April 2018, the shareholders of Fortis had already passed or approved a resolution authorising the buyback of the assets. And that was done about a year or so before 2018, I think. Number two, the valuation was carried out by EY and they agreed what the buyback value would be. It was a publicly disclosed figure. All this information was put to the shareholders when the approvals came through.” Rajagopal argued that since then no institutional investor has protested. “All were of the unanimous view that buyback made the most sense because the annual lease rentals that were being paid to that RHT were prohibitively expensive.”

One of the reasons why the IHH offer trumped other competing ones, according to Rajagopal, was the fact that it included an immediate Rs 4,000 crore cash infusion into the company, of which Rs 3,700 crore were meant for the buyback. “If we look at your smell test question, ever since that transaction was done in January 2019, it has been close to four years. There has not been a single question or a single complaint from either shareholders or from analysts or from Sebi or from SFIO who were investigating the doings of the brothers. They’ve all in a way blessed it by pretty much. Sebi too conducted its probes and nothing came of it.”

In the past Sebi had urged the Supreme Court to allow Malaysian healthcare provider to proceed with an open offer for Fortis Healthcare (FHL) and became a party to the case. The regulator said in its special leave petition (SLP) that this is 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. Stay in the open offer is not in the interests of public shareholders,” Sebi said in the SLP filed on January 22.