Ramsay Health Care gets a healthy boost in bargain sell-off

The ACCC will be a major hindrance tor Ramsay buying Healthscope’s best assets.

Ramsay Health Care’s share price is up more than 8 per cent in the past month and it may have its major Australian competitor, Healthscope, to thank for the rally.

As bargain hunters pick through the rubble of Healthscope, the verdict is that a substantial number of the 37 facilities controlled by the country’s second-largest private hospital operator will likely need to close, because they are not viable.

After documents were made available on the business following the opening of a data room for prospective buyers, some assessments conclude that only about six assets are profitable.

The upside for Ramsay is that a number of Healthscope’s hospitals are only about 20 minutes’ drive from its own facilities.

If they close, it means more patients to Ramsay’s hospitals in the same area, and the doctors that worked in those facilities may be happy to join with Ramsay as well.

While the Australian Competition and Consumer Commission will be a major hindrance for Ramsay to buy some of Healthscope’s best assets, it may opt to sell some of its own lesser-quality assets and instead buy a better Healthscope hospital in the same area.

An example would be with Healthscope’s Knox Private Hospital in Melbourne, which is profitable; Ramsay could buy that asset, but sell its hospitals at Mount Waverley and Mitcham.

Brookfield has handed the keys to the 20-plus lenders owed about $1.4bn on Healthscope, and they are all largely expected to sell the debt at a discount.

Already, several hundred million dollars worth of loans have changed hands for less than 50c in the dollar, and a lender was recently trying to offload a $300m loan, but the parcel is not thought to have yet traded.

Consortiums of hospital operators have been interested in buying some Healthscope hospitals, but will all want discounts on rent of 10 to 15 per cent, say sources.

While high costs and health insurers refusing to pay more for hospital work for its customers has hurt Healthscope, so has its burdensome debt payments and rent obligations.

Brookfield sold the properties for $2bn when it purchased Healthscope in 2019 for $4.4bn.

But while Brookfield kept its lenders off its back for the short term, the death knell was already coming for Healthscope with higher payments for nurses. The nurses have gone to the Fair Work Commission asking for money based on the argument that their work has been undervalued on the basis of gender assumptions.

Aged care nurses have already been successful taking the action.

Meanwhile, there’s been little out of Ramsay on its Goldman Sachs-run review of its 53 per cent holding in European operator Ramsay Sante.

Chief executive Natalie Davis this month outlined challenges with the operation, where the group receives 25 per cent to 30 per cent less in funding for the same work carried out in the government sector, which placed pressure on the business, as it was “not paid fairly for the work”.

The group was working on driving down costs, and she suggested one of the top three European hospital operators could be seen as a natural buyer.