This article first appeared in The Edge Malaysia Weekly on July 19, 2021 - July 25, 2021

A plan to privatise KPJ Healthcare Bhd by its largest shareholder Johor Corp (JCorp) had been in the works but has been shelved for now owing to the Covid-19 pandemic. The plan involved JCorp partnering global private equity fund TPG, say people with knowledge of the matter.

In early 2020, JCorp was considering its options for its investment in KPJ Healthcare and was looking at proposals from investors and bankers. It eventually decided to take the private hospital operator off Bursa Malaysia jointly with TPG, they add.

“There was a plan that was put into action to take KPJ Healthcare private early last year, and they were going to do it with the help of TPG. However, the plan was shelved due to the Covid-19 pandemic,” says a source.

This is not the first time that JCorp has opted to work with a private equity fund. In December 2011, the Johor state-owned investment company partnered with CVC Capital Partners to take QSR Brands Bhd and its subsidiary KFC Holdings (M) Bhd private.

Questions sent to JCorp on the privatisation of KPJ Healthcare were unanswered as at press time.

Any privatisation offer must ensure that JCorp will hold the majority stake in the privatised company, the people say. This is because KPJ Healthcare is one of JCorp’s most valuable investments apart from QSR and KFC.

JCorp’s stake in KPJ Healthcare is held by Capaian Aspirasi Sdn Bhd. Through the company, it owns 44.2% of KPJ Healthcare, which at last Friday’s closing price of RM1.02 is worth RM2 billion.

It also has interest held via an Islamic trust, through Waqaf An Nur Corp Bhd.

In the first quarter ended March 31, 2021 (1QFY2021), KPJ Healthcare’s net profit declined 62.4% to RM15.24 million, owing to a fall in revenue as a result of lower patient numbers. The group recorded 712,547 patients in 1QFY2021, compared with 743,970 patients in the same quarter in 2020.

During the quarter, KPJ Healthcare’s earnings before interest, taxes, depreciation and amortisation (Ebitda) declined 18% year on year to RM125.8 million, while its profit before tax (PBT) plunged 63% to RM20.2 million.

The sharper decline in PBT was due to fixed costs remaining constant in the quarter, despite the group registering lower revenue and Ebitda.

The Covid-19 pandemic and the various Movement Control Orders (MCOs) affected KPJ Healthcare’s operations, with its bed occupancy rate (BOR) in 1QFY2021 plunging to 39%, from 65% in the corresponding quarter last year.

Owing to the extended MCOs this year, KPJ Healthcare’s BOR has continued to remain low. In May, the rate was just around 38%. Analysts expect it to have remained low in the second quarter of the year, with the reimplementation of the MCO.

Despite the low BOR, KPJ Healthcare still has to cover its fixed costs, which include staff costs, depreciation and amortisation and finance costs.

Over the past one year, the company’s share price has risen about 27.2% to last Friday’s close of RM1.02.

At this price, if JCorp were to take over KPJ Healthcare, it would have to fork out at least RM2.2 billion, which should not pose a problem for JCorp if it partners TPG, as the latter has US$96 billion (RM404 billion) worth of assets under management.

According to TPG’s website, it has invested a total of US$11.5 billion in healthcare, of which US$7.4 billion was invested in the past decade. Its investments in the sector range from pharmaceutical companies to technology and data providers.

According to sources, TPG plans to build a regional chain of primary healthcare hospitals through the tie-up with KPJ Healthcare. The KPJ chain of 28 hospitals in Malaysa would complement the Columbia Asia Hospital chain that TPG acquired in September 2019 together with the Hong Leong group for US$1.2 billion.

The Hong Leong Group and TPG joint venture acquired 17 Columbia Asia hospitals and one clinic in a transaction touted as one of the largest in the healthcare space in recent years. It involved Columba Asia’s 12 hospitals in Malaysia, three in Indonesia and two in Vietnam. Columbia Asia’s 11 hospitals in India were not part of the deal.

Last month, Singapore’s sovereign wealth fund GIC Pte Ltd signed a deal with Sunway Bhd to acquire a 16% stake in Sunway Healthcare Holdings Sdn Bhd for RM750 million. There is a plan for Sunway and GIC to list Sunway Healthcare in the next six to eight years. The deal values Sunway Healthcare, which currently has just two hospitals, at RM4.69 billion.

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