Aster DM Healthcare to Divest $1 Bn Gulf Business to Chart Out India Growth Story

Founder Moopen underscored that divesting the Gulf business would unlock growth potential for the Indian entity, given the GCC region's hyper-competitive and less profitable landscape. This split is poised to facilitate Aster DM Healthcare's sustained growth in India at a rate surpassing 25-30%.

Aster DM Healthcare Ltd has unveiled plans to separate its Gulf business and sell it to its Indian promoters, the Moopen family, and a Dubai consortium for $1.001 billion.

The move is directed at unlocking shareholder value and appealing to a broader base of institutional investors. In this initiative, a UAE government-backed Fajr Capital consortium is slated to acquire 65% of the Gulf entity. At the same time, Azad Moopen, the promoter of Aster, will retain ownership of the remaining 35% once the transaction concludes.

The Gulf business constitutes 70% of Aster's revenues and will be housed under Alpha GCC Holdings Ltd, a wholly-owned material subsidiary of Aster DM Healthcare.

The current market capitalisation of the combined India and GCC business stands at $2 billion. Further, the transaction values the Gulf business at an enterprise value of $1.7 billion and an equity value of $1.001 billion.

Of the total amount, $903 million will be paid to Aster DM Healthcare. Most of the proceeds will be issued as dividends to Aster DM Healthcare investors, subject to board approval. The remaining funds will be paid out after certain contingent events, including an earnout of up to $70 million based on the EBITDA achieved by the GCC business in FY24.

Founder Azad Moopen stated that the Gulf business had lower margins, making it a drag on the India business.

"The India market was not giving the value for the GCC business. Our investors told us that these two geographies have got their own destiny. We also realised 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.

Fajr Capital, the lead member of the consortium, will contribute the bulk of the funds for the deal. The Moopen family will fund its share of the transaction through dividends secured from the listed India business. The promoters' 42% stake in the listed entity is pledged against a debt of $80 million, which will be retired following the transaction.

The company emphasised that the transaction, involving a related party, was conducted at arm's arm's length. The structural changes are expected to address the issue of pledged shares, providing an opportunity to retire the existing debt.

The collaboration had received requests from bidders for continued promoter participation in the GCC business, reflecting a keen interest in ensuring the sustainability of the business following the restructuring.

Moopen highlighted that the sale of the Gulf business would unlock the Indian entity's growth potential. The GCC region's hyper-competitive landscape resulted in lower profitability compared to the underserved India market. The split is anticipated to pave the way for Aster DM Healthcare's continued growth in India at a rate exceeding 25-30%.

The company expressed optimism about future expansion in India, with plans to add 1,500 beds in the next two or three years. While internal accruals will fund most of the expansion, the company may also consider selling stakes to private equity partners.

Aster DM Healthcare went public in February 2018, raising INR 980 Cr in an initial public offering. The company's shares fell 1.41% on Tuesday amid reports of the sale announcement. True North invested in Aster DM in 2008, and the listed company also counts PE firm Olympus Capital as an investor.

In a similar development, just days back, Fortis Healthcare finalised agreements to sell its Fortis Malar Hospital in Chennai to MGM Healthcare. This deal includes selling its Malar facility's business operations, land and building assets.

The deal, valued at approximately INR 128 Cr, will see the transfer of these assets to MGM Healthcare in an all-cash transaction. The transaction consummation is expected by the end of January 2024, subject to various conditions and regulatory approvals.