Durban - Private hospital group Life Healthcare on Tuesday announced that it has undertaken a fully underwritten, renounceable rights offer of up to R10.7 billion to fund its UK Alliance Medical Group acquisition and reduce its debt.
In November, the South African private hospital group said it had agreed to buy a 95 percent controlling stake in Alliance Medical for about R10.4 billion. The deal was to be funded through a temporary loan from Barclays and the Rand Merchant Bank.
The fully underwritten offer will cut Life Healthcare’s debt to the appropriate level of gearing for the company to restore its investment grade credit rating and to maintain sufficient financial flexibility to pursue its planned capital investment programme as well as to continue paying dividends.
The acquisition of Alliance Medical would give Life Healthcare access to the UK, Italy and Ireland. Life Healthcare also operates in Poland and India.
Life Healthcare said its shareholders would decide in January if they will give the rights offer a go-ahead when they vote for the resolution in the annual general meeting.
“The implementation of the proposed rights offer is subject to Life Healthcare shareholders’ approval of the following resolutions proposed at the annual general meeting to be held on January 25, 2017,” the company said.
Life Healthcare said the Alliance Medical Group deal would provide it with geographic diversification from 4 percent to 24 percent of revenue, which would be generated outside of South Africa.
In its latest results, Life Healthcare reported a declined of 11.66 percent in profits to R1.97 billion for the year to end September, although revenue gained 12 percent to R16.4 billion.
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When the company announced the acquisition in November, its share price lost more than 6 percent on the JSE.
However, on Tuesday, its shares opened 1.20 percent higher and continued to trade higher for the better part of the day before eventually closing 1.48 percent up at R32.14 per share.
The group has also acquired PGM for R629 million and Carint for R103 million, funded from debt raised in Poland.
In India, Life Healthcare has invested R2.5 billion from its South African operations into Max, which includes an additional R320 million invested during the year to fund the Max Smart acquisition in India by Max.
For the year ahead, the group said it was well positioned strategically and it had access to the funding necessary to fulfil its international expansion aspirations.
Izak van Niekerk, an equity analyst at Mergence Investment Managers, said it was important for Life Healthcare to take up the rights offer.
He said the rights offer was not optional as Life Healthcare's net debt position would be above targeted levels if it bought Alliance with only debt funding.