HealthInvestor Asia Summit 2018
Financial intelligence for Asia's healthcare markets
 
 
Remember me:

Analysis: Returns and impact from healthcare investment in emerging markets.

Nomaan Mirza, principal equity specialist at the International Finance Corporation, looks at healthcare equity opportunities in emerging markets.

Since the golden years of the early to mid-2000s emerging markets equities have experienced leaner and more volatile times. One sector that has been a striking exception is healthcare. At IFC, the member of the World Bank Group that invests in the private sector in emerging markets, our health equity portfolio totals several hundred million dollars. IFC invests in health services because it is an investment in human capital – essential for economic development and reducing poverty. In addition to these social returns, our investments in health equities have also generated strong financial returns, higher than that of many other sectors in our portfolio, including insurance, agribusiness, and food & beverages.

Why has health outperformed other sectors in emerging markets? Demographics is part of it. Developing countries have made great progress in lowering incidences of communicable diseases. Unfortunately, however, they are also facing a simultaneous increase in non-communicable, chronic diseases as life expectancies improve. And it is the non-communicable diseases that afflict more people and typically require more sustained treatments.

It’s no surprise, then, that we are seeing a surge in demand for healthcare in emerging markets. On the supply side, providers are trying to catch up with the demand. The market has a lot of space to grow, and this makes health equities particularly attractive. Few emerging economies have the fiscal space or management capacity for the public sector to pay for the soaring demand for quality and accessible services. This means that private sector investment is a must to meet the needs for healthcare.

Health is also a defensive sector to which many investors turn when an economy faces headwinds. A person may hold off on buying a car during a recession, but they are less likely to avoid visits to the doctor or clinic. Being more resilient than many other sectors, health sector equities tend to hold up better than others, even as a country’s or region’s economic growth rate may be slowing. In fact, health stock prices have more than recovered from their pre-financial crisis performance, whereas other emerging market stocks are still struggling to recoup their losses.

At IFC, we can invest in a wide variety of financial instruments, ranging from senior loans and structured mezzanine investments to common equity. Why would companies be interested in having IFC as a shareholder? They may need a cash injection to grow and/or deleverage, and know that IFC can deliver, having built up a reputation as a responsible and trustworthy shareholder over six decades. There are other motivations as well. For instance, companies also see IFC’s global network and deep expertise in health as a valuable resource to draw from, particularly when considering expansion opportunities further afield. Moreover, having IFC as an investor often provides a signal to the market that the company takes environmental, social, and governance issues seriously, which can be particularly valuable for companies considering an IPO.

We have helped healthcare companies to successfully undergo an IPO on several occasions. Take MedLife in Romania, for example. From its humble origins in the 1990s as a small, family-owned clinic, MedLife has grown into the largest network of privately-owned hospitals and clinics in Romania. IFC first took a shareholding in MedLife in the mid-2000s, and since then we have worked with MedLife’s management and shareholders to grow its operations, improve corporate governance, and to prepare for an IPO. MedLife was the first healthcare company in Romania to successfully list on the Bucharest stock exchange when the IPO was launched in December 2016.

IFC has enjoyed similar success with its cornerstone investments in the IPOs of Malaysia-based IHH Healthcare and Fosun Pharma in China. IFC’s investment in Life Healthcare in South Africa is another interesting case. IFC played matchmaker when Life looked to expand overseas, facilitating its eventual purchase of a stake in Max Healthcare in India, also an IFC portfolio company.

Looking to the future, key healthcare markets where we see significant opportunities for investment include Brazil, China, India, Indonesia, Kenya, Mexico, South Africa, and Vietnam. IFC, with its development mandate, is also looking at how to foster new opportunities for investment in less developed countries. Particularly in Africa, where health services are fragmented and access to finance is weak, IFC sees opportunities for consolidation and is investing in private equity platforms. For example, IFC’s investment in CIEL Africa Healthcare Limited is supporting the creation of a pan-African network of hospitals which can share resources and combine purchasing power for lower costs. As we see an exponentially increasing demand for private health in emerging markets, we believe there remains a compelling opportunity for equity investors to support solid companies that can deliver tremendous development impact and excellent long-term returns.

Posted on: 29/01/2018 UTC+08:00


News

Bumrungrad Hospital, Thailand’s second-largest listed hospital operator, has reported an 8.8% rise in annual profits to Bt3.9 billion (US$124.8 million) on revenues that 2.2% to Bt18.5 billion.
Half year profits at nursing staffing provider Bamboos Health Care Holdings jumped thanks to the increase in demand for services from both institutional and individual clients and, in particular, from hospitals for its placement service.
Singapore-listed investment holding company New Silkroutes Group (NSG) is to raise S$5 million (US$3.8 million) in a private placement. Proceeds will be used to develop healthcare education and training opportunities.
Al-‘Aqar Healthcare REIT, a subsidiary of KPJ Healthcare, has reported a 33.4% rise in profits for the year to M$84.6 million (US$21.6 million) on revenues that rose 19% to M$120.3 million. The increase in profits was mainly due to higher fair value gains on investment properties and lower financing cost following the redemption of an unrated M$80 million Sukuk in July last year.
Solid H1 figures and a steady outlook for the rest of the year saw shares in aged care operator Estia Heath jump almost 6% yesterday.
Parkway Life REIT, which is owned by IHH Healthcare, has paid up for yen funding, though with the possibility of US interest rate hikes, the move is a canny way of hedging forex exposure.
For the second time in seven months, RHT Health Trust, the first business trust listed on the Singapore stock exchange with a portfolio comprising healthcare assets in India, has flagged up an event of default on its S$120 million (US$88 million) 4.5% bonds due in July.
SGX-listed TalkMed Group, a provider of medical oncology and palliative care health care services, has reported a 15.4% decline in annual profits to S$36.9 million (US$27.9 million) on revenues that fell 11% to S$61.4 million.



Analysis

Nicole Hill, global director of healthcare at ALE, has a goal to make everyone and everything in healthcare connected. She explains how healthcare is entering a second wave of digitisation in Asia.
There is a simple reason why healthcare stocks on the SGX rose today. Yesterday’s budget was focused firmly on healthcare. Finance minister Heng Swee Keat announced not just an additional S$10.2 billion (US$7.8 million) for healthcare over the next year, he made clear that he was committed to the sector.
A new paper from KPMG looks at the disconnect between consumer expectations and the current healthcare experience of patients in Australia.
Gan Kim Yong, Singapore’s minister for health, explains why integrated care is important in the context of an ageing population.
Not having featured before 2015, Chinese investment in Australia’s healthcare sector has surged over the past three years. It has reached A$5.5 billion (US$4.5 billion) across 16 completed deals, according to a new report from KPMG and The University of Sydney Business School.
Michael Griffiths, regional director of healthcare at specialist insurance brokers Howden, explains how insurance is an answer to the region’s healthcare crisis.
Nomaan Mirza, principal equity specialist at the International Finance Corporation, looks at healthcare equity opportunities in emerging markets.
The healthcare industry in Asia-Pacific is expected to grow at 11.1% in 2018, representing one of the fastest growing regions in the world, as the global healthcare economy averages a 4.8% annual growth rate.
my images

Podcasts

Hedge Fund Focus

HealthInvestor Asia twitter feed
HIA Indices