• IHH announced on Bursa Malaysia that several parties have filed applications before the Supreme Court of India in an attempt to seek remedies for themselves.
• Minority shareholder Anshuman Khanna had sought resumption of the Fortis open offer but asking IHH to pay 10% interest to the eligible public shareholders of Fortis due to the delay since IHH is earning interest on the 100% of the consideration payable in the escrow account.

• The Securities and Exchange Board of India (SEBI) had also sought resumption of the Fortis open offer citing larger public interest at stake.

• Recall that IHH became the controlling shareholder of Fortis upon the completion of the acquisition of 31.1% stake in Fortis on 13 November 2018.

• This triggered a mandatory takeover offer (MTO) to acquire up to 26% of the expanded capital from the existing shareholders of Fortis. The open offer was initially scheduled to commence in December 2018.

• However, the court issued a status quo order on 14 December 2018, which prevented any of the parties involved in the dispute from taking any action until the matter can be resolved. This has delayed the takeover process until the court comes to a decision (next court hearing on 16 March 2020).

• The ruling came in a case filed by Daiichi Sankyo Co Ltd as part of its effort to recover US$500mil from Fortis’ founders and ex-owners Malvinder and Shivinder Singh.

• On 18 November 2019, a notice of contempt has been issued to Fortis by SEBI in relation to its decision to buy back hospital assets from Religare Health Trust (RHT).

• We are neutral on this as paying 10% interest is not part of the SEBI takeover code requirements.

• IHH also did not delay the open offer; rather it was the Supreme Court’s order, hence IHH is not in violation of any rule in relation to the deferment of the open offer.

• According to the group, no interest is earned on the circa RM2bil deposit placed in escrow account.

• According to our calculations, Fortis recorded around an 8% YoY increase in its revenue in 2019, contributing circa 18% to IHH’s revenue and 11% to IHH’s EBIT.

• We have accounted for IHH's 31.1% stake in Fortis in our forecasts.

• We maintain our HOLD recommendation on IHH Healthcare with an unchanged FV of RM6.06 based on DCF (WACC 7.4%; terminal growth rate 3.5%)

Source: AmInvest Research - 6 Mar 2020