Khazanah, which has made an open offer to buy controlling stake in Parkway, may not shy away from making a handsome profit if Fortis jumps into the race. But it would prove costly for Fortis shareholders
The Singh brothers, Malvinder and Shivinder, who sold their stake in Ranbaxy Ltd to Japanese Daichi Sankyo, are paying a huge price to control Parkway Holdings Ltd that could result in a massive cash outflow from Fortis Healthcare Ltd. As it is, the Singhs have paid a huge price for the ambitious acquisition. Parkway earned just 7.7% return on capital for last year for which the Singhs have paid 32.6X the net profit of 123 million Singapore dollar (S$) for the year ended December 2009.
Singapore-listed Parkway Holdings is in the news due to the possible control war between Fortis Healthcare and Malaysian government's fund Khazanah Nasional Bhd. Last week, Khazanah, which holds 23.8% stake in Parkway, made an open offer to increase its stake to 51.5% at S$3.78 per share. Fortis, on the other hand, holds 25.37% stake in Parkway, making it the largest stakeholder in the company. This has given Fortis four seats on the board of directors besides making Malvinder Singh the chairman of Parkway.
In March, US-based private equity group TPG Capital sold its 23.9% stake in Parkway to Fortis for S$959 million, valuing the business at over S$4 billion for just S$123 million of profit. Now, if Fortis wants to make a counter offer to Khazanah's offer, then the Indian company will have to go for full open offer to buy Parkway. This is because Singapore's take-over rules do not allow parties who have bought shares in the last six months to carry out a partial offer. That could potentially cost Fortis at least S$3.1 billion to buy out the remaining shareholders in Parkway at Tuesday's market price.
In other words, Fortis will have to shell out over S$4 billion, including the price it paid to TPG, for buying a company whose returns on shareholder's funds are just 7.7% for FY09. For 2009, Parkway's total revenues increased 7% to S$979.2 million compared with S$914.8 million a year ago. However, during the same period, its net profit increased 169% to S$124.9 million from S$43.4 million in the previous year due to better performance of its international operations.
Parkway’s Singapore operations remained stagnant in FY09, registering a 1% growth in total revenue to S$642.1 million from S$633.2 million in FY 2008, that too when Singapore is the largest source of the company’s revenue, accounting for 66% of total revenue for the year.
There are other angles too in the control war saga. However, if the Singhs decide to make an open offer for Parkway, there are chances of huge cash outflow from Fortis' Indian operations. This may be bad news for Indian shareholders.
According to media reports from Singapore, there remains uncertainty about the Parkway control. Khazanah, which has made an open offer to buy controlling stake in Parkway, may not shy away from making a handsome profit if Fortis jumps into the race.
Fortis is trying to get support from Government of Singapore Investment Corp Pte Ltd (GSIC) to make a counter-bid for Parkway. However, GSIC, which is a sovereign fund, has a mandate to invest in companies outside Singapore. Interestingly, GSIC holds 6.5% stake in Fortis besides an investment of $95 million through convertible foreign currency bonds issued by the company. If these bonds are converted into shares, then GSIC's stake in Fortis increases to over 13%. So in this situation, according to market sources, instead of jumping into the control war, GSIC may extend borrowing facility or grant a loan to Fortis.
Khazanah also has an Indian connection. Khazanah holds a 12% stake in Apollo Hospitals Enterprises Ltd while Parkway and Apollo jointly run a hospital in Kolkata.
A range-bound trading market settled in the positive zone supported by Reliance Communications and Bharti Airtel stocks, which were up by 11% and 5%, respectively. The Sensex was up 169 points at 16,741 (up 1%) while the Nifty was up 50 points at 5020 (up 1%). The indices were up in the early trading session, taking cues from the Asian markets. The bourses traded range-bound for most of the day. The market witnessed a sharp rise in the late trading session and ended near the high point of the day.
Asian stock markets were mixed on concerns about the political situation in Japan. Key benchmark indices in Taiwan, Japan and Hong Kong were down by 0.13% to 1.28%. On the other hand, indices in China, Indonesia and Singapore were up by 0.12% to 0.47%. The market in South Korea was closed for local elections.
The US market was down on Tuesday over the concerns of new banking problems in Europe and a slowdown in Chinese growth. The Dow was down 112 points (1.1%), at 10,024. The S&P 500 was down 18 points (1.7%), at 1,070 and the Nasdaq was down 34 points (1.5%), at 2,222.
Manufacturing growth slowed down across the globe in May. In the US, the headline number showed a slight decline but new orders and exports were stable. The index of national factory activity was at 59.7 in May from 60.4 in April in the US. The index's employment component rose to a six-year high, while new orders were unchanged at 65.7, and exports increased to 62 in May from 61 the previous month.
Closer home, the auto sector posted a firm growth in May. Maruti Suzuki India sold 102,175 vehicles in May, the most for any month and up 28% from a year earlier. Hyundai Motor Co’s Indian unit sold 46,808 units in May including exports, an annual increase of 7%. Two-wheeler manufacturers also posted positive growth in May. Hero Honda Motors posted 14% growth in sales to more than 435,900 units.
The Reserve Bank of India (RBI) said that inflation remained higher than its comfort level, signalling that the bank could raise interest rates further. Foreign institutional investors (FIIs) were the net sellers of Rs526 crore on Tuesday. Domestic institutional investors bought stocks worth Rs210 crore yesterday.
Shiva Cement (up 1.9%) said that the dispatch of cement and clinker during the period April-May, 2010 was up by 5.5% in comparison to April-May, 2009. However, during May 2010 the figure was down by 1.8% in comparison to the same month last year. Infotech Enterprises (up 0.04%) has signed a long term Master Service Agreement with Seawell AS of Norway to provide engineering support services. Seawell is an international drilling & well services company. This agreement with Infotech would enable Seawell to further expand its engineering capacity and improve competitiveness.
The board of AIA Engineering (up 1.7%) has recommended a final dividend of Rs1.70 per equity share of Rs2 each on 9,43,20,370 shares for the year ended 31 March 2010. Aditya Birla Nuvo’s (up 0.4%) subsidiary, Aditya Birla Minacs Worldwide Ltd has acquired Bureau of Collection Recovery (BCR), a leading US-based accounts receivable management company. With this, Minacs' clients will now have access to BCR's team of collections experts and its experienced top management. Post acquisition, BCR will operate as a subsidiary of Aditya Birla Minacs. Take Solutions (up 6%) has entered into strategic partnership with Reliance Life Sciences to supply its unique and innovative PharmaReady eCTD, SPL and PPM modules. The seamless integration of Take Solutions' technologically advanced products will not only support Reliance Life Sciences in strengthening its product development services, but these customised IT solutions will add a cutting-edge finesse to the present line of business.
The market regulator is putting together guidelines for banks and national distributors to check mis-selling of mutual funds
Market watchdog Securities and Exchange Board of India (SEBI) is mulling further strengthening the mutual fund (MF) distribution system to prevent possible cases of mis-selling by banks and national distributors. Recently, the Association of Mutual Funds in India (AMFI) had sent a strict warning to national distributors like HSBC, NJ India Invest, HDFC Bank and Kotak Mahindra Bank who were actively engaged in the AUM transfer business. Incidentally, Moneylife had reported about such practices by national distributors earlier. (Read here: http://www.moneylife.in/article/8/3697.html). However, these entities in their reply to AMFI did not show any signs of strengthening their guard against mis-selling.
SEBI has now proposed that the risk appetite, investment objective and affordability of the customer should match with the product. Besides, national distributors and banks will have to seek an acknowledgement document from the clients before a client invests in a scheme. The acknowledgement document will contain the customer category and a statement of fee earned from a particular product. The market regulator has also suggested recording the calls of all relationship managers with the customers for auditing and has also proposed periodic auditing and compliance of these new norms.
SEBI is working along with the National Institute of Securities Markets (NISM) to formulate the guidelines. The working group committee will also include representatives from banks and national distributors.
However, industry experts believe that mis-selling cannot be completely ruled out.
“Some amount of mis-selling cannot be avoided in any profession. Some doctors prescribe medicines suggested by a pharmaceutical company. Some coaching classes don’t teach properly. In a democracy, nothing is mis-sold; it is either sold or not sold. If something is sold that means both parties have agreed. Mis-selling is more prevalent in Unit Linked Insurance Plans (ULIPs) and insurance but the regulator Insurance Regulatory and Development Authority (IRDA) is defending it. Mis-selling should be curbed by creating investor awareness by SEBI,” said a top official from a leading fund house.
“These recommendations are not feasible. All relationship managers will start calling from public booths. You can’t record conversations on mobile phones. It will deter national distributors from mis-selling but in some or the other way mis-selling will continue,” said a Mumbai-based financial planner.
Recently SEBI had asked fund houses to disclose all complaints received by them on their respective websites and in their annual reports by 30 June 2010 in order to increase transparency.