IHH Sells to Taikang Life

IHH Healthcare the largest Malaysia-based hospital operator by market capitalization, has divested a 29.9% stake in its indirectly held unit PCH Holding to Chinese firm TK Healthcare Investment.

The 689.6 million ringgit ($160.3 million) proposed sale came from a combination of secondary sale (26.5%) and shares allotment (73.5%), according to a company release to the stock exchange. Proceeds from the transactions will go towards financing PCH's future growth.

TK Healthcare Investment is a special-purpose vehicle of Beijing-based TIG, or formerly known as Taikang Life Insurance, a diversified group with core businesses in insurance, asset management, and health care, including elder care.

IHH's subsidiary, Parkway Group Healthcare will still hold a 70.1% stake in PCH Holding, while TK Healthcare Investment's stake will be 29.9% upon completion of the of the divestment.

The stake sale is "expected to enhance the collaboration between [both parties] in the area of health care and insurance businesses in China and will build a stronger platform for the growth of PCH's business in China." The collaboration will include the "funding of the projects to be undertaken by PCH going forward, in proportion to their respective shareholding percentages in PCH."

PCH, formerly known as Parkway China Holding, holds a chain of clinics and hospitals in China. A month ago, IHH completed an internal reorganization whereby the entire equity interest of Shanghai Gleneagles Hospital Management was transferred to Parkway Group Healthcare from PCH in a 3.85 million ringgit transaction.

Analysts' reactions to the move have been mixed. Hong Leong Investment Bank Research's analyst Sia Ket Ee said in a note that the partnership "has clear synergistic motives" which will help to secure a large base of customers via TIG's coverage and referrals in China. Public Investment Bank's analyst Nor Asilah Amran similarly noted that "the partnership gives potential opportunities to the group to build a stronger platform of growth in China through collaboration in the area of health care and insurance businesses going forward."

Meanwhile, Kenanga Research analyst Raymond Choo Ping Khoon said that "the divestment will lead to earnings leakage via minority interest, however, the proceeds from the share subscription agreement would allow more funds for future expansion in China." He also noted that profit margins could be under pressure in the short-to-medium-term on the back of escalating costs pressure as well as a slower-than-expected economic outlook.

IHH Healthcare's shares fell 0.95% or six cents to 6.25 ringgit, while the benchmark FTSE Bursa Malaysia KLCI was down 1.07% or 17.55 points Monday.