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Gulf healthcare IPO looks tempting but risky

Gulf healthcare IPO looks tempting but risky

The first initial public offering of an Abu Dhabi corporate in London looks both tempting and risky. NMC Health has every reason to want to list in the UK. It has a clear growth story, and the London market knows healthcare well. But investors should demand to see a full medical history before parting with any cash.

March 10, 2012 5:13 by



The IPO will entirely comprise new shares, and NMC has set out a reasonably specific plan for what it wants to do with the projected $250 million proceeds. About 30 percent of the company will be sold, implying a market capitalisation of around $830 million for the listed entity. That seems to be in the right ball park, based on early disclosure. NMC says it made EBITDA of $70.5 million last year. On a multiple of 8, in line with similar quoted companies in the West, that would imply an enterprise value of $560 million, and an equity value of $810 million adding the new money. NMC doesn’t have much debt, according to a person familiar with the situation.

Demand for healthcare in the United Arab Emirates is set to rise. The population is growing, and a fondness for Western consumption has brought with it a rise in so-called lifestyle diseases. NMC is capable of taking a sizeable share of this opportunity, having been going since 1975. Adjusted EBITDA has risen by a compound 30 percent over the last three years.

But while there is a general logic to the offering, investors may have some qualms. The shareholder structure has undergone a dramatic change in the past year. Indian founder and Chief Executive B.R. Shetty sold swathes of his diverse business empire to the well-connected Alqubaisi clan that now owns the majority of NMC. But the circumstances are hazy. Shetty will still hold around 21 percent after after the IPO.

The expected minimum one year lock-up period for current shareholders will also pass quickly, and the stock risks suffering from an overhang from the outset. What’s more, the cultural challenges of a transition from a decades-old privately-run UAE company into one listed on the London Stock Exchange will not be small — even with the strong roll-call of Western industry experts on the new board. For all its attractions, NMC will probably need a decent discount to get away.

CONTEXT NEWS
— UAE healthcare provider NMC Health, founded by billionaire Indian entrepreneur B.R. Shetty, plans to raise up to $250 million by offering an additional 30 percent of its capital in an initial public offering on the London Stock Exchange.

— Abu Dhabi-based NMC, one of the largest private sector healthcare providers in the United Arab Emirates, operates general and specialised hospitals, pharmacies and medical centres.

— NMC said it will use proceeds from the IPO and a $150 million credit facility to finance expansion plans. These include the acquisition of a medical centre in Dubai by July, the development of a maternity hospital in Abu Dhabi scheduled to open by the second half of 2012. It also plans to construct a hospital in Abu Dhabi by 2014.

— NMC expects to price the IPO by the end of March or early April, a banking source working on the deal told Reuters. The issue could involve an over-allotment, or greenshoe, option amounting to 15 percent of NMC’s share capital if demand is strong, the source added, speaking on condition of anonymity. Since early 2011, NMC has been controlled by investor Saeed Bin Butti Alqubaisi, who holds a 43 percent stake. His investment firm holds a further 12 percent.

— In January, UAE Exchange sold a 40 percent stake to Centurion Investment for $2 billion. Centurion is owned by Saeed Bin Butti Alqubaisi. UAE Exchange was also previously owned by Shetty.

— Reuters: UAE-based NMC Health plans London IPO

— Press release: NMC stake sale in January 2011

(The authors, Una Galani and Chris Hughes, are Reuters Breakingviews columnists. The opinions expressed are their own. Editing by Chris Hughes and Sarah Bailey)



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