Life Healthcare Group Holdings Ltd., a South African hospital owner whose initial public offering would have been the continent’s biggest in at least a decade, cut the size of its IPO by as much as 30 percent as share sales worldwide suffer setbacks amid stock-market volatility.
Life Healthcare will now seek to raise as much as 5.65 billion rand ($741.7 million) from the sale, down from the original 8.04 billion rand. It reduced the amount of shares on offer to 390 million from 473 million and trimmed the price range to between 13.50 rand and 14.50 rand, from as much as 17 rand, according to a statement yesterday. The final price will be released on the Johannesburg Stock Exchange News Service today.
At least 28 companies worldwide postponed or shelved share sales in May as concern Europe’s debt crisis will derail the global economic recovery sent the MSCI World Index of developed- market stocks down 9.9 percent. Ferrous Resources Ltd., the iron-ore company seeking funds for a Brazilian mine, this week halted its $400 million London offering citing “volatility” in the equity markets.
“Market circumstances at the moment can’t be ignored and investors are in no rush to get into the market — even a good company needs to be at a good price,” said David Shapiro, who heads Sasfin Holdings Ltd.’s securities unit in Johannesburg. “The offer looks too expensive.” Shapiro said he won’t consider buying shares until after the stock starts trading.
Valuation
Life Healthcare may have a market capitalization of as much as 15.3 billion rand, about 8.1 times earnings before interest, tax, depreciation and amortization for the year through September, based on company data. That compares with 9.2 times earnings for Netcare Ltd., the largest owner of private hospitals in South Africa, and 4 times for Medi-Clinic Corp. Ltd., the second-biggest publicly traded hospital owner, calculations by Bloomberg show. Medi-Clinic’s yearend is March.
“Life Healthcare has positioned itself well,” with its “pure South African earnings base and the likelihood of expansion into Turkey or India,” Funeka Beja, a fund manager with Afena Capital in Cape Town said by e-mail. “According to our initial calculations the new offer range is more representative of fair value.”
The price range doesn’t leave “much of a discount for investors,” considering there is less visibility and more uncertainty when comparing an unlisted company to its listed peers, Neil Stuart-Findlay, a fund manager from Investec Asset Management, said in an interview from Cape Town. “This is a solid business, but as with any share, one has to weigh up a good company versus a good investment.”
Expansion
Life Healthcare, which owns or operates 62 hospitals with about 8,100 beds, plans operations in India, Turkey and the countries neighboring South Africa, Chief Executive Officer Michael Flemming said in a May 18 interview.
In South Africa, the company intends to expand facilities within existing hospitals and add new lines of business in “underserviced areas” such as mental health, kidney dialysis and frail care, Flemming said. The Johannesburg-based company on June 2 said it bought Bayview Private Hospital in Mossel Bay. In the six months through March, revenue increased 11 percent to 4.2 billion rand from a year earlier. Ebitda advanced 14 percent to 982 million rand.
New York-based Morgan Stanley, Rand Merchant Bank in Johannesburg and Credit Suisse Group AG of Zurich are managing the offering.
Life Healthcare’s IPO would be the fifth-largest in Africa since at least 2001, Bloomberg data show. Maroc Telecom is the biggest, raising $903 million November 2004, followed by Starcomm Plc of Nigeria, which got $840 million in July 2008, Safaricom Ltd., East Africa’s biggest mobile-network operator, and Telecom Egypt.
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