(Updated)

Sunway may sell stake in healthcare arm to Singapore’s GIC

This article first appeared in The Edge Malaysia Weekly, on June 21, 2021 - June 27, 2021.
Sunway may sell stake in healthcare arm to Singapore’s GIC
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CONGLOMERATE Sunway Bhd may sell a strategic stake in its healthcare asset to Government of Singapore Investment Corp (GIC), sources familiar with the matter tell The Edge.

While details are scarce, it is understood that Sunway may be making an announcement about the sale of between 20% and 25% equity interest in its healthcare business as early as this week, if all goes well.

A Sunway spokesperson declined to comment when asked about the possibility of Singaporean sovereign wealth fund GIC buying into the company’s healthcare unit.

Two separate sources familiar with Sunway say, however, that the deal is on the cusp of being concluded.

It is unclear which healthcare entity the stake sale would involve. In May, Sunway carried out a reoganisation that saw Sunway City Sdn Bhd (SunCity), a wholly-owned subsidiary of Sunway, entering into a share purchase agreement with Sunway Healthcare Holdings Sdn Bhd (SHH), a wholly-owned subsidiary of Sun­City. This was for the disposal of all its equity interests in healthcare companies that include Sunway Medical Centre Sdn Bhd to SHH.

Sunway Medical Centre is wholly-owned by Sunway and operates from Sunway City, a township built by the group. It was established in late 1999, and offers comprehensive tertiary healthcare services, with 617 licensed beds, 180 consultation suites and 12 operating theatres, among others.

Talk of a stake sale or flotation exercise has been ongoing since the third quarter of last year.

Queried by the local bourse early last September, Sunway confirmed news reports that the diversified group had appointed Maybank Investment Bank to assist in a US$250 million sale of its healthcare arm.

In its announcement, Sunway said it had “appointed Maybank Investment Bank to explore strategic investment options for its healthcare portfolio, in line with the company’s objective to enhance shareholder value as the company continues to explore and evaluate various options for all its businesses”.

GIC is likely to fork out a substantial sum for the stake in Sunway Medical Centre.

For its financial year ended December 2019, Sunway Medical Centre chalked up RM63.61 million in after-tax profits, from RM576.64 million in revenue. In contrast to the year before, after-tax profits had grown by a 34.86% quantum and revenue, by 25.7%.

As at end-December 2019, Sunway Medical Centre had total assets of RM1.06 billion and total liabilities of RM572.05 million. The company had retained earnings of RM358.99 million as at end-2019.

In a breakdown of its latest quarterly financials, Sunway reported that its healthcare unit raked in a pre-tax profit of RM13.99 million, from RM170.63 million in sales. Annualised, that would give it after-tax profits of close to RM56 million, from RM682.52 million in sales.

The dip in earnings is likely to be the result of the shutdown from the Covid-19 pandemic.

In February this year, UOB Kay Hian said in an update on Sunway that the divestment of a stake in its healthcare asset was at an advanced stage, and that speculation about the 20%-to-25% block fetching US$250 million (RM1 billion) meant it would be at twice its current valuation.

The price tag being bandied about for the sale to GIC is said to be between the two figures and estimated at RM700 million. GIC — the world’s sixth-largest sovereign wealth fund, with US$440 billion in assets under management — should have little difficulty, if any, with the price tag.

The sale of this strategic stake and having GIC as a partner could be a huge boost for Sunway, which is a diversified conglomerate. Besides healthcare, it has businesses such as education, construction, property development, theme parks, hotels and malls under its umbrella.

For its quarter ended March, Sunway registered net profits of RM58.45 million on the back of RM1.02 billion in revenue. For the corresponding period a year ago, the company made net profits of RM62.4 million from revenue of RM971.44 million.

As at end-March this year, Sunway had cash and bank balances of RM1.94 billion as well as short-term debt commitments of RM5.71 billion and long-term borrowings of RM1.11 billion.

In the notes accompanying its financials, Sunway says, “While the group’s leisure and hospitality businesses continue to be impacted by the ongoing pandemic, the other business segments of the group are, however, more resilient and able to continue to perform and deliver satisfactory results ... Barring any unforeseen circumstances, the group expects the financial performance of this year to be satisfactory.”

In an interview with The Edge in late September last year, Sarena Cheah Yean Tih, an executive director at the conglomerate, had said, “It makes sense for us to ride the growth going forward. Ultimately, the economy will bounce back. It is just a matter of when. So, this is the time to plan and prepare.” She was referring to how, when navigating prolonged uncertainty, having a growth mindset is as important as being in survival mode during a crisis.

Sarena is the daughter of Tan Sri Jeffrey Cheah Fook Ling, founder and patriarch of the Sunway group. Jeffrey controls almost 63% equity interest in Sunway.

Year to date, the counter has risen 5.9% to RM1.69 last Friday, translating into a market capitalisation of RM8.34 billion.

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