Dubai’s Aster DM Healthcare Group intends to commit more than Dh1 billion in building four new — or acquiring existing — health care facilities in Saudi Arabia over the next four years. This is on top of a Dh900 million deal it entered into late last year to buy 97 per cent in a 250-bed Riyadh hospital.
The funds required will be sourced through a small equity sell-off to private equity. Aster DM has had two rounds of such funding in the past.
Each of the proposed investments will be for hospitals with between 200-250 beds, and located in Riyadh and Jeddah. The cost-per-bed, which is an industry metric, will be at the Dh1 million mark, which is similar to what it is in a more mature health care market as the UAE.
Saudi Arabia could well be the next big market for health care sector deals, through both direct private sector investments as well as those brought on by the Saudi government’s decision to bring in private players to manage its health care assets.
Aster DM could be interested in such public sector owned facilities, but will need better clarity on how the terms would be structured. “Rather than a direct fee-based management contract for a short term on individual hospitals, Aster DM would prefer if the deals with the authorities could be for longer tenures, of 10 years and more,” said Dr Azad Moopen, Chairman.
“Last year, PwC (the management consultancy) submitted a report to us on the areas in the Kingdom that we should focus on. As such, Saudi Arabia is the most liberal among Gulf countries in allowing foreign investments into health care, such as allowing full ownership by clearing it through Sagia (Saudi Arabian General Investment Authority).”
On whether it was the case that operating costs would be higher there because of stricter job quota requirements for Saudi nationals, Moopen said: “It’s not the case — having more nationals would mean higher salary structures vis-a-vis expats, but they tend to be balanced by other expenses such as on housing costs, etc” (The Saudi requirement is for a 25 per cent nationalisation in health care establishments, for the operator to merit a “green zone” credential.) The focus on Saudi Arabia for the next wave of health care deals could well ease some of the activity the sector had seen in the UAE over the last three years. There had been multiple deals led by blue-chips such as NMC Health and Mediclinic International. The acquisition of Al Noor Hospitals was an intensely contested affair. Meanwhile, private equity funds continue to chase opportunities locally.
Aster DM, however, preferred not to get into any deal-making in the UAE, its preference was for greenfield ventures. (Currently, it operates three hospitals in Dubai). Two apiece in Dubai and Sharjah are due to be added to its network in the near term. More are planned for Dubai, especially in the emerging residential locations.
“It was on purpose that that we didn’t get involved in any of the deals happening in the UAE. The valuations that were being talked about were, in my opinion, much higher than was warranted. Also, it would have meant diluting our equity (in the operating company) to raise finances for the deal. It was prudent to stay away.”
As regards new possibilities in Abu Dhabi, “We had an impression that actual capacity being planned — based on all the project announcements — for the emirate was in excess of what the market needed,” said Moopen. “But now we see that some of those projects from the smaller players are yet to even start construction.
“It means an opportunity for us to come in now with two projects, which could even be through acquiring an existing operation there.”
As of now, its network (which also includes clinics and pharmacies) in the UAE makes up 60 per cent of the group turnover, with the rest of the Gulf and its expanding India base contributing 15 per cent each.
The push into Saudi Arabia offers the best option yet to widen the revenue base in the medium term.
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