Hospital groups ‘pushed offshore’

The strict regulatory framework in the country was hampering the expansion of healthcare companies locally, forcing them to look offshore for growth, analysts said on Tuesday.

SA’s strict regulatory framework is forcing healthcare companies to look offshore for growth, say analysts.

The comments come in the wake of the Competition Commission’s decision to block the merger of Netcare with Lakeview Hospital in Benoni.

The commission said the merger would reduce or prevent competition in the area, resulting in higher hospital prices for insured patients who used the Lakeview Hospital.

On Tuesday, Netcare’s share price eased 1% before closing 0.13% up at R23.10. The private healthcare provider operates 57 hospitals and has a market capitalisation of R33bn.

Matthew Zunckel, an equity analyst at Mvunonala, said listed healthcare players were struggling to expand in SA because of tight regulatory frameworks.

He said it had become increasingly difficult to obtain licences for greenfield operations and the commission was also increasingly clamping down on brownfield expansions, as demonstrated by this latest prohibition.

“This is one of the primary reasons all the listed players have looked offshore for growth,” Zunckel said.

“This is easier in the sense that it ‘grows’ the business, but it hasn’t actually added any value to shareholders in terms of increasing earnings. Most of the acquisitions have been dilutive to earnings and value destructive,” he said.

Netcare also has operations in the UK. Its rival, Life Healthcare, operates in India, the UK and Poland, while Mediclinic has a footprint in Namibia, the UK and the United Arab Emirates.

On Monday, the private healthcare provider announced a preference dividend of 430.2c per share for the period from April to September 2017.

But this did little to lift the mood of the market as the share price continued to decline.

Last week, the company announced it would buy the rest of Britain’s BMI Healthcare from private equity firm Apax and other partners.

Rowan Williams, of Nitrogen Fund Managers, warned that hospital groups would now need to look at the effect of competition when contemplating small regional acquisitions.

“I expect that this will slow the continued consolidation of single hospitals or smaller regional groups depending on the competitive dynamics of that region,” he said.