Analysts: IHH Healthcare foreign exchange exposure remains a risk (5225)

PETALING JAYA: IHH Healthcare Bhd's
foreign exchange exposure risk remains a concern to analysts, although
it could be mitigated if and when the debts are pared down from its
initial public offering (IPO) proceeds.
A weekly reported that IHH's Turkish arm Acibadem Holdings had reported losses due to foreign exchange losses on an unhedged loan amounting to US$460.7mil (RM).
The
loan, which is serviced in Turkish lira, has a US$257.1mil payment due
in 2015. The remaining RM203.6mil is an amortised loan that will be
repaid in semi-annual payments until 2018.
Over 90% of the IPO
proceeds was proposed to be utilised for the repayment of bank
borrowings. It is notable that the group's total long-term borrowings
stand at RM7.18bil as at June 30.
Although its latest quarterly
results showed an impressive increase of more than five times in net
profit to RM403.54mil, from the corresponding period last year, an
analyst from a local bank-backed research house opined that the forex
exposure poses as a major risk to the company.
“There are no
concrete plans as yet, but management is looking into it. Although the
risk is real, the extraordinary gain from the sale of the medical
suites at Mount Elizabeth Novena Hospital will help,” the analyst said.
She
added the best solution for the company would be to hedge against the
debt. “The debt was inherited when IHH bought Acibadem. It is up to
them how to manage it.”
Meanwhile, a HLIB Research analyst said the US$500mil forex risk should not be a big problem for the company.
“For a company as big as IHH, they can afford it. Every company which ventures overseas will be faced with forex risk,” he said.
He added that it should not haunt IHH unless the exchange rate between the dollar and the lira fluctuates drastically.
CIMB Research
analyst Gary Ng said the forex risk is not a huge concern as IHH's
management has been quite clear on managing the exposure to specific
currencies in the countries it operates in.
He expects the
US$500mil debt to be refinanced, most likely in the Singaporean or
Malaysian market to take advantage of the interest rate savings. “They
could save at least 5% in interest rates, so it is an incentive to tap
on the loans here,” he said.
Ng added that although IHH is
Acibadem's major shareholder with a 60% stake, the decision on how the
forex risk exposure is managed will be a collective decision with
remaining shareholders Khazanah Nasional Bhd and Acibadem chairman Mehmet Ali Aydinlar. Khazanah holds 15% in Acibadem while Mehmet Ali holds 23.3%.
Ng
said: “The unrealised forex could also swing the other way. The
exchange rates are increasingly trending in favour of the lira. The
currency is less volatile than it was two to three years ago.”
Although
its Turkish operations have been growing in number of inpatient and
outpatient admissions, IHH said in a recent statement that Acibadem's
earnings are largely dependent on the year-end US$ to Turkish lira
exchange rate and its impact on the unhedged borrowings.
The
HLIB Research analyst said although the earnings for the second quarter
ended June 30 were slightly below expectations, he expects stronger
growth in the second half. “Admissions are expected to increase in
winter, especially in countries such as Turkey, China and Hong Kong,”
he said.
Excluding the sale of the medical suites, the group's
normalised revenue for the quarter was 82% higher at RM1.5bil compared
to RM816mil for the same period last year. Revenue for the quarter
inclusive of the sale was RM2.7bil.
IHH said that Acibadem is
expanding its existing facilities and building new ones to cater to
growing demand, on the back that Turkey is becoming a more popular
destination for medical travel in the Central and Eastern Europe,
Middle East and North African region.