Tris: BDMS purchase of BH could hurt credit

The conditional voluntary tender offer by Bangkok Dusit Medical Services Plc (BDMS) to acquire additional shares of Bumrungrad Hospital Plc (BH) will have a neutral to negative effect on BDMS’s credit rating, depending on the amount of shares it acquires in the offer, says Tris Ratings.

However, Tris said the potential transaction will have no immediate effect on BH’s ratings.

BDMS holds 182.5 million of BH’s shares, or 24.99% of the total issued shares of BH. On Feb 27, the board of directors of BDMS approved a conditional voluntary tender offer for all the remaining securities including ordinary shares, preference shares, and convertible debentures of BH held by other shareholders. The offer price is 125 baht per share, amounting to 85.61 billion baht. The offer price could be adjusted by 20% depending on prevailing market conditions and the trading price of BH’s shares at the time.

According to Tris, the tender offer could have an effect on BDMS’s credit profile, depending on the amount of BH’s shares being acquired and the company’s future capital structure. BDMS intends to use its internal cash flow and new bank loans to fund the investment. Given the potentially huge investment cost, a successful tender offer will likely require substantial new loans to fund the investment.

Tris said a large debt-funded investment could raise significant debt and increase the debt to earnings before interest, taxes, depreciation and amortisation ratio to stay over two times, which would not be commensurate with BDMS’s current credit ratings. However, the impacts could be immaterial if BDMS purchases only a small portion of BH’s shares.

The transaction is subject to approval by BDMS’s shareholders at an annual general meeting scheduled on April 10, as well as the Office of Trade Competition Commission (OTCC).

Tris sees the potential transaction as having no immediate effect on BH’s ratings and outlook. BH announced BDMS’s action is an unsolicited voluntary tender offer and BH’s management had no prior knowledge of the transaction. BH insists the two are competitors in the Thai healthcare industry, particularly in the medical tourism segment. BH intends to engage and cooperate with the OTCC to counter BDMS’s action.

In Tris’s view, it is too early to determine the likelihood of the tender offer’s success, given that BH’s management has rejected the offer and the transaction is subject to the approval of the OTCC.

BDMS is rated by Tris AA and BH is rated A+, both with stable outlooks.