Apollo Hospitals seeks investors and assets sale to cut debt

The aim is to reduce Apollo shares pledged by the family as collateral to lenders, to 20% of their total holding in the company from about 78% now.

A nurse exits a door to operating rooms at an Apollo Speciality Hospital | Dhiraj Singh | Bloomberg

Mumbai: The family that controls Apollo Hospitals Enterprise Ltd., India’s largest private hospital chain, is looking to sell assets or bring an outside investor into their holding company to pay down debt.

The aim is to reduce the Apollo shares pledged by the family as collateral to lenders, to 20% of their total holding in the company from about 78% now, said Suneeta Reddy, Apollo’s managing director and one of the four daughters of founder Prathap Reddy. The Reddy family owns about 34% of Apollo’s stock.

“The idea is to do something that’s good for all shareholders of Apollo. If it means reducing our pledge, we are committed to doing that,” she said in an interview with Bloomberg. “We will see what the family can do.”

Shares of the Chennai-based company rose as much as 2.7% during trading in Mumbai, outstripping the 0.4% intraday advance in the benchmark S&P BSE Sensex.

In February, Apollo saw its share price plummet as a credit crunch across India’s financial sector spurred fears that companies whose controlling shareholders had pledged a large proportion of their holdings could be in danger of bulk selling if those large shareholders defaulted. Subhash Chandra’s Essel Group and Anil Ambani-controlled firms also faced investor concerns.

Pledged ratio

Apollo’s stock has recovered since then, gaining more than 12% this year. The Reddy family has sold off its share in a health insurance venture with Munich Re Group that it says will bring its pledged ratio down to between 35% and 40% by September. The family has given itself about a year to get the pledge ratio of its Apollo holding down further to 20%, Suneeta Reddy said.

Among the assets the family could sell are a chain of 13 nursing colleges and two medical colleges it owns. The family has spent 3 billion rupees ($43.8 million) building the education venture and it is expected to turn profitable next year, Reddy said.

Another fundraising avenue the family is exploring is bringing an investor directly into its holding company, PCR Investments Ltd., which may replace the 5.5 billion rupees in debt securities lent by private-equity giant KKR & Co. that recently matured, she said.

“People are talking to us,” Reddy said. She declined to specify what kind of investor they are looking for, other than that it will be someone “who has an understanding of health care” or wants to get into the business. “It will be long term,” she added.

The Reddys are also working to reduce debt at Apollo itself, with proceeds from the insurance sale and a plan to spin off its chain of retail pharmacies expected to bring long-term debt down to 25 billion rupees by the end of the year from about 30 billion rupees currently. Reddy said the company expects to announce another deal to raise cash and pay down the debt further sometime this month, declining to specify details.