Waiting game

PRINCE Court Medical Centre (PCMC) is a top hospital with a hotel-like feel that was set up by Petronas.

Operating costs were naturally high and over the years losses mounted. With accumulated losses reportedly past RM1bil, the hospital was put up for sale and on Thursday, Khazanah Nasional Bhd paid an undisclosed amount to take over the hospital.

Concurrently, Khazanah inked a collaboration agreement with IHH Healthcare Bhd for shared services support and operational improvement initiatives at PCMC. IHH is 41% owned by Khazanah and will be given the right of first offer to acquire PCMC during a pre-agreed period.

The deal is multiple in some ways. For Khazanah, buying PCMC allows it to rehabilitate the asset towards profitability and do so without the piercing eyes of the investment community. PCMC is a 270-bed hospital in a business and industry that has a growth trajectory a lot of businesses will envy. The hospital with its specialists and reputation is one that will add to the portfolio of hospitals under IHH should it decide to go ahead and buy the hospital.

keeoing it under Khazanah also helps with IHH’s financials. The loss-making operations of PCMC would be a drag on IHH and for a stock that is on the global radar of investors, that decision would have been detrimental to the share price performance of IHH.

The simple fact is that the healthcare business in Malaysia is growing. Columbia Asia Group has just received additional equity investment of US$210mil (RM820mil) to build new hospitals and deepen the level of specialty care in existing facilities.

That is apart from the expansion plans that other hospital groups in the country are undertaking.

IHH by entering into a collaboration agreement with Khazanah is still expected to make money from the hospital. It is expected to gain from management fees given to PCMC and that will allow itself to see that contribution be accretive to earnings until a time it decides to buy the hospital outright.