GIC eyes stake in Ramsay Health Care operating company

GIC was expected to emerge as an investor in Ramsay’s real estate assets, in the event that KKR offloaded the properties as part of a deal. However, sources say that this is no longer the case.

Speculation is mounting that Singaporean sovereign wealth fund GIC will take a stake in the operating company of Ramsay Health Care if Kohlberg Kravis Roberts proceeds with its buyout of the $16bn target.

Earlier, GIC was expected to emerge as an investor in Ramsay’s real estate assets, in the event that KKR offloaded the properties as part of a deal. However, sources say that this is no longer the case.

It has now been at least eight weeks since KKR made an $88 per share bid for Ramsay, in a deal valuing the country’s largest private hospital operator at about $20bn.

While it was expected that Ramsay would be finalising its due diligence on the target by now, the understanding is that extracting information about its French business Ramsay Sante has been a challenge, because it’s publicly listed and not fully owned by the Australian healthcare provider.

Now the expectation is that it will take a while to see the outcome of KKR’s due diligence on Ramsay.

Ramsay’s Australian shares are trading as though the deal will not proceed, closing at $71.52 on Friday.

A major question is whether KKR will cut the price from its original offer, given the change in the market conditions, where credit costs have increased.

Australian superannuation fund Hesta and the Abu Dhabi Investment Authority are supporting KKR’s bid.

However, it is now said that GIC is also in the mix as a co-investor. KKR had been in talks with real estate groups including Charter Hall, NorthWest Healthcare Properties, Dexus Property and Australian Unity about a deal where it would sell the real estate.

The understanding is that KKR had been hoping for a price equating to an investment yield of less than 4 per cent.

This would see the assets sell for about $8bn or $9bn, with an internal rate of return of about 5.5 per cent. But Australian listed real estate investment trusts are understood to have baulked at the price demands at a time of rising interest rates. Based on this, it is now expected that the real estate will be retained in a KKR-managed fund.

Sources believe that the New York-based buyout fund hopes to attract two or three investors for the fund. But finding companies to write cheques of between $2bn and $3bn is not easy.

With the Australian 10-year bond yield now over 4 per cent, many believe a yield of 5-6 per cent is more realistic.

GIC was in talks to buy the real estate with Charter Hall before it turned its attention to a deal with the operating company.

Earlier, Charter Hall was working with AustralianSuper.