IPO still in the cards for MPIC hospital unit

Infrastructure holding firm Metro Pacific Investments Corp. (MPIC) is proceeding with negotiations for the sale of shares in its hospital business to new investors while also processing a massive P83-billion initial public offering (IPO) in what some analysts deem as a two-track asset selldown.

Reuters reported Singapore state investor Temasek and private equity firms KKR and CVC were among the prospective investors that had advanced to the second round of an auction to buy into Metro Pacific Hospital Holdings Inc. (MPHHI), operator of the largest hospital chain in the Philippines.

This came even as MPHHI filed an application for public listing worth as much as P83 billion, mostly consisting of secondary shares in line with an asset selldown. The plan is to sell up to 457.86 million common shares at a maximum price of P182 per share.

A prospectus filed with the Securities and Exchange Commission is not clear how much control MPIC will retain in this hospital unit. MPHHI is undergoing a capital restructuring that also involves the issuance of voting preferred shares. Counting only the common shares, the prospectus showed MPIC’s holdings would decline to 16.57 percent from 85.62 percent.

On the negotiated sale, bidders were reportedly valuing MPHHI for up to $2 billion, or over 20 times next year’s estimated core profit.

Raymond Neil Franco, head of research at Abacus Securities, said the Metro Pacific group was likely keeping its dual track strategy of selling what could be a controlling stake in MPHHI.

“We even think the filing of an IPO prospectus was a … red herring meant to boost the bids from private equity firms,” Franco said.

He noted the $2-billion valuation being floated on the negotiated sale for 100 percent of MPHHI was about 40-percent lower than the P167.5-billion evaluation implied by the company’s IPO price of P182 per share.

The reported valuation of 20 times next year’s core earnings is significantly lower than the regional average which is closer to 30 times, but according to Franco this may be justifiable given that regional peers were all far larger.

With the bidders seemingly gunning for a majority stake, Franco was concerned losing its fastest growing and least regulated business might not bode well for MPIC in the long term.

Given a mandate from parent conglomerate First Pacific to sell noncore to raise capital, ceding a controlling stake in the Philippine hospital business may be an “open option,” said ATR Asset Management head of research Jose Mari Lacson.

He said getting an institutional investor to buy into the hospital business in lieu of a prospective IPO made more sense.

“There’s also the advantage of partnerships being expanded to other businesses if the partnership is good and mutually beneficial,” he added.

MPHHI operates a chain of 14 tertiary hospitals with 3,200 beds across the country, including Makati Medical Center, Asian Hospital, Cardinal Santos Medical Center and Davao Doctors Hospitals. The plan is to grow the network to 5,000 beds in the next few years, invest in a chain of cancer treatment centers and build a brand-new hospital for children in the metro.