ET Bureau|Aug 01, 2019, 08.31 AM IST

MUMBAI: Japanese conglomerates Mitsui & Co. and Itochu Corp. as well as Abu Dhabi Investment Authority (ADIA) are in separate talks with the Reddys of Apollo Hospital Enterprises, India’s largest hospital operator, to invest $350-400 million to buy part of their stake in the group holding company PCR Investments Ltd, multiple sources with direct knowledge of the matter told ET. 

Promoters Prathap C Reddy and his family members plan to bring a foreign strategic investor on board PCR Investments in order to reduce debt and strengthen the balance sheet. 

If a deal takes place, it will be one of the largest investments in India’s healthcare services space, which has seen a spate of consolidation in the past decade thanks to aggressive private equity inflows as well as the growing ambitions of strategic investors. 

Reddys Own 34% of Apollo Hospitals 

The Reddy family is battling debt that stood at about Rs 3,450 crore at the end of March. More than 75% of the promoter stake is pledged as collateral to lenders. Founder Prathap C Reddy’s family owns about 34% of Apollo Hospitals. 

Following the stake sale in Apollo Munich Health Insurance, the pledge is expected to come down to 50%. India’s largest private lender HDFC Ltd acquired the 50.8% stake of Apollo Hospitals Group in Apollo Munich, a joint venture with German reinsurer Munich Re Group, for Rs 1,347 crore last month. At the end of trade on Wednesday, the market value of Apollo Hospitals was Rs 18,781 crore. The share ended at Rs 1,352.70 on the BSE, up 1.43%. 

Credit Suisse, which recently underwrote a Rs 1,000 crore bridge loan facility to the Reddys, is helping the family find an investor, sources said. 

Apollo said the Reddys are looking to slash debt. 

“The promoters are committed to reduce their debt at the holding company to half, along with the insurance transaction closure over the next two-three months,” said an Apollo Hospitals spokesperson. “Further, there are plans to bring the overall hold-co pledge to lower than 20% in the next one year or maybe even earlier. We would not want to comment on any specifics at this stage.” 

Mitsui and ADIA declined to comment. Itochu didn’t respond to queries. 

In the recent past, the Reddys held discussions with Mitsubishi of Japan for a stake sale in Apollo but these didn’t fructify. Over the years, Apollo has had Apax and IHH as investors in the company before they exited. 

Japanese giant Mitusi has a strong presence in hospital sector in Asia and is on the verge of expanding the business into other markets. 

Mitsui is the largest shareholder in Asia’s largest private hospital chain IHH Healthcare Bhd, with a stake of about 33%. Last year, Mitsui bought a 16% stake in IHH from investment company Khazanah Nasional Bhd for $2 billion to become the largest shareholder. 

IHH is operating 50 hospitals with a total of over 115,000 beds in 83 hospitals across 12 countries including Singapore, Malaysia, Turkey and India. Last year, IHH agreed to acquire Fortis Healthcare Ltd., valuing India’s second- .. 

Itochu, the $106-billion Japanese conglomerate, has a strong presence in areas such as textiles, machinery, metals and minerals, energy and chemicals, food, realty and financial services. The group has plans to expand its presence in new areas such as hospitals in Asian markets. In January last year, it acquired about a fourth of OUE Lippo Healthcare Ltd, which runs Siloam Hospitals in Indonesia for $600 million. 

In the last few years, margins in the hospital industry have narrowed following government regulations such as price controls. Sensing an opportunity, strategic players and investors have been in discussions to buy large and mid-sized hospital chains in India. 

Following IHH Healthcare's acquisition of Fortis Healthcare last year, Manipal Hospitals is in the final stages of negotiations to acquire Delhi based Medanta.