Indian Supreme Court directed Fortis and the Supreme Court registry to register a fresh contempt petition in regard to violation of the order of the Honourable Court (14 December 2018). Fortis Open Offer is put to halt for the time being, and the next hearing will be on the 3rd February 2020. IHH remains committed to proceed with the open offer; however if IHH is unable to do so, it would still be the single largest shareholder (31.1% stake). We maintain forecast, maintain HOLD with unchanged TP of RM5.66.

NEWSBREAK

The Honourable Supreme Court of India (on 15 November 2019) directed Fortis and the Supreme Court registry to register a fresh contempt petition in regard to violation of the order of the Honourable Court dated 14 December 2018 (with regard to the bid for controlling stake in Fortis Healthcare). Fortis is evaluating the judgement and seeking appropriate legal advice on the matter.

In light of the judgement, the Fortis Open Offer as well as the Malar Open Offer (subject to the completion of the Fortis Open Offer) will not proceed for the time being. The next hearing date for this matter is 3rd February 2020.

HLIB’s VIEW

Recap. To recap, IHH acquired a 31.1% stake in Fortis on 13th Nov 2018 for RM2.4bn. Under Securities and Exchange Board of India (SEBI), the preferential allotment of Fortis shares (when it acquired the 31.1% stake) triggered a mandatory open offer for acquisition of c.26% of the expanded voting share capital.

IHH acquired Fortis fairly. IHH’s management clarified that the 31.1% stake in Fortis was undertaken in a fair and transparent manner, after obtaining the requisite corporate and regulatory approvals and in accordance with all applicable laws. It is further noted that subscription was undertaken and completed after the Singh brothers (Fortis’ founders) were no longer in control of Fortis. However, with IHH being the major shareholder of Fortis, it would not preclude IHH from further legal actions from ongoing lawsuits against Fortis.

Fortis Open Offer halts for now. Fortis Open Offer and Malar Open Offer will not be able to proceed for the time being, with scheduled hearing date on 3rd February 2020. We understand that IHH remains committed to proceed with the Fortis Open Offer once the stay is lifted by the Supreme Court of India. However, if it is decided that IHH cannot proceed with the mandatory open offer of Fortis (c.26%), IHH would still be the single largest shareholder (31% stake) having 5 nominated members on Fortis board.

No intention to sell SRL. Separately, there has been multiple speculative news on IHH facilitating the planned sale of up to 44% stake in SRL Ltd (diagnostics arm of Fortis Healthcare Ltd). However, we understand that Fortis has no intention of selling SRL Ltd.

Forecast. Maintained.

Maintain HOLD, TP: RM5.66. Pending next hearing date 3rd February 2020, we maintain HOLD with unchanged TP of RM5.66. Out TP implies FY19-20 EV/EBITDA of 18.3x-16.3x.

Source: Hong Leong Investment Bank Research - 19 Nov 2019