Why Netcare will not inject cash into UK business
Private hospital group Netcare will not provide its UK business, BMI Healthcare, with a £20m injection and credit support, as the company has implemented a short-term arrangement with its lenders, Netcare says.
BMI Healthcare, a subsidiary of General Healthcare Group (GHG), in which Netcare holds a 56.9% stake, is the UK’s biggest private hospital provider.
Netcare said in November that in light of its planned acquisition of the interests of the minority shareholders in GHG and BMI’s poor financial performance it had been assisting BMI to renegotiate the terms of its banking facilities and would invest £20m into the business.
BMI delivered an operating loss of £20.6m for the year to September 30, compared with a profit of £28.7m in 2016, as patient volumes dropped.
Numbers fell for both those funded by the National Health Service and those paid for by private medical insurance.
"At the end of December and with the support of its lenders, BMI implemented a short-term arrangement without the need for Netcare to contribute any capital or provide any other credit support. BMI continues to pursue a long-term financing arrangement with its lenders, which remains a condition precedent to the transaction for Netcare to acquire GHG minority interests," Netcare said.
"Netcare remains committed to BMI and is in discussion with its largest landlord, TheatrePropCo, to agree a rent reduction transaction that would be beneficial to all.... Further financial support from Netcare to BMI will remain subject to a resolution of the [rental agreement]."
PropCo is GHG’s property business and leases facilities to the group’s operating arm, Opco. Netcare has been trying to renegotiate a more favourable rental agreement but has yet to strike a deal.
Investec portfolio manager Andrew Joannou said some shareholders had been concerned about the announcement in 2017 that Netcare intended to inject £20m into BMI, as they preferred the UK business to be self-funded. They would regard the latest developments as positive, he said. "This is quite important, as management has re-established the ring-fenced nature of the South African business versus the UK."
Fairtree Capital portfolio manager Jean-Pierre Verster interpreted the announcement by Netcare as a signal that it would not inject more money into BMI without a rent reduction agreement with PropCo.