Ramsay Health Care seeks $1.4bn for strategic acquisitions to expand beyond hospitals

Global private hospital operator Ramsay Health Care has launched the biggest capital raising of the year.

Ramsay Health Care is one of Australia’s largest healthcare businesses.

Global private hospital operator Ramsay Health Care has launched the biggest capital raising of the year, hoping to create a $1.4bn war chest to accelerate its out-of-hospital growth strategy and become a fully integrated healthcare company.

The coronavirus pandemic has laid bare the risks of relying on hospitals for earnings growth and fast-tracked the need to integrate more health services into Ramsay’s global portfolio of 500 hospitals and clinics.

“The primary reason for the capital raising was to be able to capitalise on opportunities as they present coming out of this virus,” chief executive Craig McNally told The Australian.

“Hospitals are still a key part of our business and will continue to be. But we want to broaden our service profile, so non-hospital healthcare services are something we are keen to do and then integrate those. This (capital raising) will potentially provide the opportunity to execute that quicker than maybe we had envisaged, and we want that financial flexibility to be able to do it.”

Ramsay — Australia’s biggest private hospital operator — began branching out from hospitals last decade, moving into Australia’s $16bn pharmacy sector, and is now on the hunt for similar related businesses such as physical therapy and diagnostic imaging to broaden its offering.

It is seeking to raise $1.4bn, made up of $1.2bn in new equity through an underwritten institutional placement and up to $200m via a non-underwritten retail share purchase plan. This equates to 10.8 per cent of Ramsay’s $13bn market capitalisation.

The placement will be at $56 per new share, a 12.9 per cent discount to the closing price on Tuesday. Ramsay says it will temporarily suspend its dividend while continuing to focus on limiting or deferring discretionary expenditure and capex.

The capital raising comes as the revenue of private operators has shrivelled in the past month after the government banned non-essential surgery to limit the spread of coronavirus. From Monday those restrictions will be gradually lifted, with the resumption of 25 per cent of elective surgery from IVF procedures to knee replacements.

Billions of dollars have already been raised from investors during the COVID-19 pandemic. Hearing implant maker Cochlear, which was one of the first companies to bear the brunt of elective surgery bans in China, raised $880m last month, while Oil Search and QBE have been secured $1.16bn and $1.2bn from their respective capital raisings.

Elective surgery is the main revenue driver of private hospitals, and following the initial ban the government provided them with a $1.3bn viability guarantee. But that deal only allowed for hospitals to recover their costs, with no profit margin for them to reinvest in equipment, including technology to fight coronavirus.

Now that some elective surgery is being resumed, the income that the hospitals will receive will offset the viability guarantee funds from the commonwealth, reducing the funding that will flow from the government to private hospitals.

“While the effect of these arrangements is that profits cannot be generated during the period of their operation, the fact that governments and health authorities are contributing to the ongoing viability of private hospital operators demonstrates the important role private hospitals can play in conjunction with public health systems,” Mr McNally said.

Wilsons analyst Shane Storey said Ramsay’s out-of-hospital strategy made sense and the coronavirus pandemic had accelerated the company’s plans.

“Ramsay has been making very small moves out of hospital care in the last couple of years, beginning with pharmacy. And the reason why they are doing that is they realise that our healthcare system will ultimately go that way,” Mr Storey said.

“They have a powerful incumbent position here as market leader in private hospitals and felt they had time on their side to see where the real threats and opportunities lie. But I think COVID-19 accelerates it.

“Not they have been caught napping, but it makes the transition more important. The key points of where we need to land will be a lower cost of healthcare delivery and that raises some pretty important questions for a big private hospital operator in how they utilise their facilities, how they deal with occupancy, profitability and how they deal with competitiveness.”

Mr McNally said post-COVID-19 the delivery of healthcare would change but not fundamentally.

“There will be changes in behaviour and changes in the way treatment is provided to some extent but the majority will stay the same. We have seen the uplift in telehealth medicine for example. But the performance of surgery will not fundamentally change as a result of the crisis. What we will see is the other services that integrate pre and post surgery and will probably see some more acceleration on that integration but I don’t think it will be fundamental.”