Proxy advisory firm ISS has recommended that Fortis Healthcare shareholders vote in favour of resolutions pertaining to the hospital chain’s proposed deal with Malaysian group IHH. ISS said the deal would help bring funds into the cash-strapped company and separate Fortis from ongoing issues that its erstwhile promoters Malvinder and Shivinder Singh are facing.
Fortis has called an extraordinary general meeting of shareholders to vote on the resolutions to facilitate the deal, which would see IHH infusing Rs 4,000 crore into the company and picking up a 31.1% stake. The proposal is to issue preferential shares to the investor. IHH would also have to make an open offer for 26% additional shares at Rs 170 each. As per the proposal, IHH would have rights to control two-thirds of the seats on the Fortis board.
ISS said the deal would “significantly” dilute existing public shareholding in Fortis to 68.28% from 99.26%. Following the open offer, the public shareholding could drop further. “Notwithstanding the potential dilution, the proposed issuance would provide the company necessary funds to finance its plans to improve its hospital business and to service its debt,” an ISS report said.
Shareholders will also be voting on a proposal to increase the authorised share capital of Fortis in order to facilitate issuance of new shares to IHH. They are also expected to vote on a proposal to declassify the Singh brothers as promoters of the company and name IHH subsidiary NTK Pvt Ltd in their place.
According to ISS, this would enable Fortis to “separate” itself from issues surrounding the current promoters and therefore shareholders should vote in favour of the move.
The Singhs have been embroiled in a legal battle with Daiichi Sankyo for several years over the enforcement of a Rs 3,500 crore arbitration award and the Japanese drug maker has been trying to block the Fortis-IHH deal in order to get its award from the brothers. Daiichi claims that Fortis and the Singhs are a “single economic entity” and therefore it has a right to recover its money through the company.