Apollo Hospital Insurance Biz Stake Sale To Help Promoters

Promoters of Apollo Hospital Enterprise (AHEL) are hoping reduce pledge shares in the company to around 25-30% by the end of January, with the HDFC’s proposed acquisition of the Apollo Hospital Group’s shares in Apollo Munich Health Insurance Company Ltd (AMHI).

AHEL is awaiting necessary regulatory approvals for the same.

AHEL said on Thursday that AMHI, HDFC and HDFC Ergo General Insurance Company received requisite approvals for the acquisition from the Competition Commission of India, the Reserve Bank of India and more recently, from the Insurance Regulatory and Development Authority of India (IRDAI) on January 1, 2020.

HDFC’s acquisition of AMHI is expected to be completed by January 9, 2020.

This will enable the promoters and promoter group companies to release a portion of the pledged shares, bringing the share down to around 25-30% from the present around 58% before the end of January.

At one point, the promoters had pledged more than 70% of their shares, and later raised nearly Rs 700 crore by selling around 5 million shares to reduce the number of pledged shares.

Earlier, the mortgage lender HDFC has lent $100 million (Rs.700 crore) to the promoters of India’s largest hospital chain AHEL to help repay immediate debt obligations of the hospital chain’s promoters.

The loan has been used by Apollo promoters to repay debt owed to Credit Suisse.

The promoter group intended to repay the Credit Suisse loan through proceeds of a 50.8% stake sale in AMHI to HDFC, which will fetch the promoters Rs.1,036 crore.

AHEL Group and a few employees are selling in AMHI to HDFC.

The sale will bring the listed entity a cash consideration of Rs 261.52 crore (subject to indemnity related and other contractually agreed deductions) and Rs 38.22 crore from Munich Health Holding AG towards joint-venture termination fee.

This money will be used to bring down the debt.

Net net this proposed deal is positive for Apollo Hospitals ax the promoter pledge hangover in the stock will get lifted and also debt which currently stands at Rs.3500 crs as on Sept 2019 will be reduced going ahead

Both these factors will help the stock getting treated ahead plus earnings would also get a moderate benefit from the debt reduction. All these factors are likely to play out fully from FY21 onwards.

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