Aster DM Healthcare's sale of Gulf business faces flak

Hospital chain Aster DM Healthcare’s plans to sell its Gulf business may run into rough weather with voting advisory firm Institutional Investor Advisory Services (IiAS) raising concerns over the transaction.

Recommending an ‘against’ vote on the resolution, IiAS has said there is no clarity on how Aster DM will utilise the proceeds that it will obtain by selling the unit, which contributes to bulk of its revenues.

In November, Aster DM had announced its plans to sell its wholly-owned subsidiary Affinity Holdings, which conducts business in the Gulf Cooperation Council (GCC) region, to Alpha GCC for $1 billion.

Alpha GCC is 65 per cent owned by Gulf-based private-equity firms led by Fajr Capital and the remaining 35 per cent is held by promoter group Moopen family.

“The company’s rationale for the divestment include undervaluation of shares of the listed entity, different market dynamics, better focus on the growth of India business.

"Given that the GCC segment contributed about 75 per cent of revenue, we raise concern over the lack of clarity on the utilisation of sale proceeds.

"While the company states that a substantial portion will be distributed as dividend, there is no clarity on the proportion of the equity consideration that will be paid out,” said IiAS in a note.

The proxy advisory firm has raised concerns over undervaluation of the Gulf business and also believes the non-compete clause will constrain the India unit.

“We have no comments to offer on the reports by the advisory firms. We have stated on multiple occasions that the board will take a final view on the amount to be retained in the Indian balance sheet while a significant portion of the proceeds from the GCC transaction is intended to be utilised to pay dividends to the shareholders of Aster India.

"Additionally, in terms of fairness of the valuation, an independent process was undertaken by the Aster and reliance was placed on the reports provided by EY and PwC as independent valuers which was backed by a fairness opinion by ICICI Securities.

"We strongly believe the proposed transaction will add immense value and is in the best interests of all shareholder,” said Aster DM in a statement.

The company operates in various segments such as hospitals, clinics, diagnostic centres and retail pharmacies in India and various GCC states.

In FY23, the company derived 75 per cent revenue and 71 per cent EBITDA from the GCC region and the rest from India.

The group derives 55 per cent revenue from hospitals business, 25 per cent revenue from pharmacies and 20 per cent from its clinics in FY23 data.

At the end of September 2023, the promoter shareholding in the company stood at 41.9 per cent, while public shareholding stood at 57.7 per cent.

The e-voting will be underway on two resolutions pertaining to the sale of GCC business until January 22.

As one is a special resolution, the promoter group will have to abstain from voting.

As a result, the votes by large public shareholders in the company such as Olympus Capital Asia, Rimco, HDFC Mutual Fund and ICICI Prudential Mutual Fund, will hold the key.

In the past six months, the stock has gained 31 per cent underperforming the Nifty Smallcap 100 index which has rallied 40 per cent.