In the war between Fortis Healthcare and Khazanah for Parkway, the Indian company will release its offer document to shareholders later this month. While extending its offer period, the Malaysian sovereign fund is busy scouting for money

Khazanah Nasional Berhad (Khazanah), the investment-holding unit of the Malaysian government, has preferred to go in for a 'wait and watch' mode in its battle with India Fortis Healthcare Ltd for controlling Parkway Holdings Ltd. In order to gain more time and knowledge, Khazanah has extended its offer period for Parkway to 26th July from 8th July.

According to a report by the Malaysian Reserve, Khazanah is seeking loans from five banks, which would enable the sovereign fund to increase its offer for Parkway. Khazanah has told Australia & New Zealand Banking Group Ltd, CIMB Group Holdings Bhd, DBS Group Holdings Ltd, Oversea-Chinese Banking Corp and United Overseas Bank Ltd that it may need to borrow at least one billion Singapore dollars (S$), the report said. Citing a person close to the developments, the newspaper said Khazanah will increase a planned sale of Islamic bonds to S$1 billion from S$500 million, in case it decides to offer more for the Parkway stake.

Last week, Fortis Healthcare, controlled by billionaire brothers Malvinder and Shivinder Singh, made a cash offer of S$3.8 per share to buy Parkway over Khazanah's S$3.78 per share offer.

On 27th May, 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. Fortis had bought stake in Parkway from US-based TPG Capital by paying S$959 million.

According to media reports, Khazanah is also waiting for Fortis to release offer documents to shareholders later this month before it takes a final judgement about its next move.

While Khazanah can make a partial offer to Parkway, the same is not true in case of Fortis. Under Singapore takeover laws, anyone who has bought shares in the past six months is forbidden from making a partial offer. This gives Khazanah an advantage over Fortis. While Khazanah can raise its price for partial offer, Fortis will have to make an offer for complete takeover, in case the bidding war breaks out.

This could potentially cost Fortis at least S$3.1 billion to buy out the remaining shareholders in Parkway. 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. (See: http://www.moneylife.in/article/8/5766.html).

Last month, Morgan Stanley - the advisor to independent directors of Parkway Holdings - has said that Khazanah's offer price of S$3.78 is reasonable, but not compelling. This advice may compel Khazanah to sweeten its offer as well as put some pressure on Fortis as well.

In a circular sent out by Parkway's independent directors, Morgan Stanley said that five of Parkway's 17 directors are considered independent. Among the five, two plan to vote in favour of the bid and sell their shares, one does not plan to vote and will keep his stake, and two do not own shares in Parkway. Three other directors, Parkway's chief executive officer (CEO) Tan See Leng, former CEO Lim Cheok Peng and its vice-chairman Seow Yung Liang, will vote against Khazanah's offer and will not sell their shares, according to the circular.