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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

Cancer-detection company Grail has raised US$300 million Series C funding led by healthcare focused investment firm Ally Bridge Group, Hillhouse Capital and 6 Dimensions Capital.
ASX-listed, but New Zealand-based medical device manufacturer Adherium has appointed David Allinson as chief financial officer. This follows the sudden resignation of Timothy Marcotte at the end of January after only four months in the post.
Following Abano’s transition to focus solely on the NZ$11 billion (US$7.6 billion) trans-Tasman dental market, the NZX-listed specialist medical investment firm has appointed Tracey Batten to the board.
Rhythm Biosciences, which is developing a screening test intended for the accurate and early detection of colorectal cancer, has appointed Glenn Gilbert as chief operating officer. For the past eight years Gilbert has held various roles at the ASX listed pharmaceutical and device maker Medical Developments International, most recently as head of sales and marketing.
Peking University Founder Group continues to develop its bond curve with the sale of US$310 million new three-year floating rate notes at three-month Libor plus 400bp as well as a US$65 million tap of its 6.25% 2020 2.5-year fixed-rate bonds. They originally priced in mid April.
Matthew Ratty has stepped down from the board of Australian healthcare group Admedus after being appointed chief executive of performance-based online and mobile marketing solutions provider Tech Mpire.
Aoxin Q&M Dental Group (AQMD), a spin off of Singapore’s Q&M Dental Group, plans to acquire a dental hospital called Youxin Dental Clinic, better known as XY Dental, in Jinzhou City, Liaoning, for Rmb19.6 million (US$3.1 million).
Healthscope, Australia’s second largest private healthcare operator, has rejected two takeover bids saying that it will not provide due diligence access to either the BGH Capital/AustralianSuper consortium or Brookfield Asset Management. Instead, Healthscope said that it will undertake a strategic review of its hospital property portfolio.



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