Why Ramsay may diagnose a reduced stake in its European subsidiary

Ramsay Sante is the second-largest private care provider in Europe.

After Ramsay Health Care’s European subsidiary refinanced its debt this week, the next step could be a move to offload a stake in the France-based group, according to sources.

Ramsay Health Care owns 52.79 per cent of France-based hospital owner Ramsay Sante and some believe a selldown of an interest of about 10 per cent could be positive for the company for several reasons.

First, it would move it to a position of a minority shareholder, so it would no longer need to consolidate the accounts and could classify earnings from the group as associate income.

As a result, it would significantly reduce the amount of reported debt carried by Ramsay at the head stock level, which may take away the so-called “overhang” with its share price, where investors are pricing in a potential equity raising they may believe is needed to replenish its balance sheet.

Potential investors of Ramsay that had sat on the sidelines due to its $4.7bn of net debt may be prepared to pick up the stock.

Buyers of the stake, which may net Ramsay about €150m ($243m), could include sovereign wealth funds such as Singapore’s Temasek or Abu Dhabi’s Mubadala.

This week’s refinancing tidies up its state of affairs in preparation for such a deal, with loans worth €1.65bn having their deadlines extended beyond 2026 and 2027 maturities.

Ramsay has signalled that it would be prepared to divest Ramsay Sante, but there are not thought to be buyers interested in the whole business at the right price.

After an initial selldown, Australian-based Ramsay may move to sell additional shares at a later stage.

Ramsay Sante’s performance has lagged Ramsay’s Australian business and, while the Australian-listed Ramsay share price trades at low levels, part of the weaker performance is linked to more broader challenging conditions in healthcare.

The company told the market on Wednesday that over the nine months to March 31, Ramsay Sante’s revenue increased by 6.9 per cent, up €3.7bn, mainly supported by a dynamic organic growth.

However, earnings before interest, tax, depreciation and amortisation decreased by 1.2 per cent to €445m despite higher activity, mainly affected by lower subsidies and increased gap between tariff increases and inflation.

Its net leverage ratio at March was five times earnings, and 4.9 times at the end of May, with more than €1.876.8bn of debt.

As earlier reported, in addition to the refinancing, sources also believe Ramsay Health Care is looking to sell non-performing hospital assets within Ramsay Sante to gain a value uplift.

Ramsay Health Care’s share price is close to half the $88 a share that Kohlberg Kravis Roberts offered for the business in a $20bn bid last year that it later withdrew, considered partly due to its challenges getting a handle on the performance of the French operation.

Healthcare workers have recently been on strike in France, to the detriment of Ramsay Sante, but the dispute has now been resolved after an agreement with the French government around funding that had earlier been seen as unfavourable towards private hospital operators.

Ramsay Sante’s most logical buyer is considered the KKR-backed Elsan.

Ramsay Health Care’s largest shareholder is The Paul Ramsay Foundation with 19 per cent. The company first bought French hospitals in 2010.

Ramsay Sante is the second-largest private care provider in Europe. It has 443 hospitals, clinics, primary care and imaging centres across Europe.

Major equity holders of Ramsay Sante, listed on Euronext Paris, are Predica with almost 40 per cent, and Credit Agricole group’s personal insurance subsidiary.

Over the long term, Ramsay’s prospects are strong, due to an increasingly ageing population, despite short-term industry headwinds such as cost pressures and staff shortages, but shareholders have been dissatisfied with performance, which may lead to management changes at the top.

Ramsay reported a 286 per cent increase in its net profit for the six months to December to $758.5m.