Leading hospital chain Aster DM Healthcare Ltd said it will separate its mainstay Gulf business and sell it to its Indian promoters (Moopen family) and a Dubai consortium for $1.001 billion, in a move it said will unlock shareholder value and attract more institutional investors.
A consortium led by United Arab Emirates (UAE) government-backed Fajr Capital will own 65% of the Gulf entity, while Azad Moopen, the promoter of Aster, will own 35%, once the transaction is concluded.
Aster’s business in the GCC (Gulf Cooperation Council) countries is housed under Alpha GCC Holdings Ltd, a wholly owned material subsidiary of Aster DM Healthcare.
The current market cap of the combined India and GCC business stands at $2 billion. The transaction values the GCC business at an enterprise value of $1.7 billion ( ₹13,540 crore) and an equity value of $1.001 billion ( ₹8,215 crore), the company said. The deal will help erase the Gulf company’s debt.
Of the $1.001 billion, $903 million will be paid to Aster DM Healthcare. The bulk of the proceeds will be issued as dividends to Aster DM Healthcare investors, the company said, subject to board approval. The rest will be paid out subsequent to certain ‘contingent events’, including an earnout of up to $70 million based on Ebitda (earnings before interest, taxes, depreciation, and amortization) achieved by the GCC business in FY24, the company said.
The Gulf business generates 70% of Aster’s revenues, but it was a drag on the India business because of lower margins, founder Azad Moopen said in an interview.
“The India market was not giving the value for the GCC business,” Moopen said.
“Our investors told us that these two geographies have got their own destiny. We also realized that these two markets are different, we have to have a separate set of investors as well as a separate set of strategies and management teams for both strategies,” he added.
Moopen will continue in his role as founder and chairman, and will oversee both India and GCC businesses, while his daughter Alisha Moopen will be promoted to the position of managing director and Group CEO of the GCC business (currently, she is deputy managing director). Nitish Shetty will continue as CEO of the India business.
While Fajr Capital will fetch the bulk of the money for the deal, the Moopen family will fund its share of the transaction through dividends secured from the listed India business. The company said that it is “desirous” of declaring dividends to the shareholders of Aster DM Healthcare from the proceeds of the sale, subject to approvals required under law.
“We have some resources here, but we are the largest shareholders owning 42% in Aster DM Healthcare. The money that comes in (through dividends), we hope that we can fund using that,” Moopen said. In the listed entity, the promoters’ 42% stake is pledged against a debt of $80 million, which will be retired, he said.
“There is a structural issue because of which we had to pledge all of our shares. But after this transaction is over, we hope to get out of this structural issue and repay the loan,” Moopen said. The transaction is with a related party and done at arm’s length, the Aster statement clarified.
The company said it had received requests from bidders for continued promoter participation in the GCC business. “As previously disclosed vide the disclosure made on July 24, 2023, the company had received requests from bidders during the bidding process for continued promoter participation in the GCC business to ensure its sustainability following the restructuring,” the Aster statement said.
Moopen said the split will aid the listed entity since the Gulf business had lower margins. Profitability of the Gulf business was lower because the GCC region is hyper-competitive for a smaller population, while the India market is still underserved, he said. The GCC compounded annual growth rate (CAGR) of the past five years for Aster DM was around 5.19%, while for India, it was around 16.2%, he said. According to Moopen, the GCC sale will unlock the Indian entity’s potential for growth, which should see this business continue to grow at over 25-30%.
“What we hope is that we will also be able to grow inorganically as well as organically by investing in India. As we speak, we hope that we’ll be adding 1,500 beds in the next two or three years, which will take our total bed count to 6,000 beds (in India) through organic growth,” he said. The future expansion for Aster DM Healthcare will be funded by internal accruals, but the company may also sell stakes to private equity partners, Moopen said.
According to Moopen, Aster DM was struggling to find PE partners earlier since it was not happy with the company’s Ebitda growth, but after deciding to sell the business, many PE investors have shown interest and the company’s stock rose significantly in the past one year. “We have now become a sought-after bride in the Indian ecosystem.”
The Fajr Capital consortium also includes Emirates Investment Authority, Al Dhow Holding Co., Hana Investment Co., and Wafra International Investment Co.
Aster DM Healthcare went public in February 2018 in an initial public offering raising ₹980 crore, selling its shares at ₹190 apiece. On Tuesday, the company’s shares fell 1.41% to close at ₹334.35 as reports cited a possible sale announcement later in the day.
Founded by Azad Moopen in 1987 as a single clinic, Aster DM’s portfolio of healthcare facilities has vastly expanded since then in India and the Gulf. In India, it is present in five South Indian states through 19 hospitals, 13 clinics, 226 pharmacies and 251 patient experience centres. In the Gulf, it has 15 hospitals, 118 clinics and 276 pharmacies across the UAE, Saudi Arabia, Qatar, Oman, Bahrain and Jordan.
Aster’s hospitals in India are located in Kochi, Kolhapur, Kozhikode, Kottakkal, Bengaluru and Hyderabad, and operated under the Aster Medcity, Malabar Institute of Medical Sciences (MIMS) and Aster Prime Hospital brands, according to its website.
True North invested in Aster DM in 2008, though it subsequently sold some stake in 2019. The listed company also counts PE firm Olympus Capital as an investor.