Healthcare Financing in India

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Healthcare Financing in India

• 7th Global Knowledge Millennium 2009

New Delhi
Abhishek Bhagat Head Lifesciences Technology
26th November 2009
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Financial Resources in the Healthcare Industry

• The Government contributes 20 to the total
  healthcare expenditure in India, the remaining
  80 comes from the private sector
• India has one of the highest private
• spending in healthcare as compared
• to other countries (Fig. 1)

• The Healthcare industry is India is estimated to
  achieve a market size of 77 billion by 2012
  (YBL Research), this translates into an
  investment opportunity of over 30 billion by
  2012.

Figure 1 Healthcare spending as part of
GDP (Source The Economist)
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Trends in PE Investments in Healthcare

• Investment in Established entities
• PE players have traditionally invested in private
  healthcare providers, usually hospitals with
  either of the below
• Established presence in India
• Good gross margins
• Reliable promoters with successful ventures
• Investment in Emerging models
• With private healthcare becoming more active in
  India and growth in the healthcare sector due to
  increased consumer awareness, investments have
  also moved towards new models
• Medicities
• Medical Diagnostics
• Pathology and Diagnostic labs
• Retail Pharmacy

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Trends in PE Investments in Healthcare -
Investment in Emerging Models

• There is an emerging focus on Unique Business
  Models in healthcare by funds
• Healthcare services reaching out to Tier II and
  Tier III cities
• Tier I cities 80 healthcare providers in India
  are located in Tier I cities
• Resulting in
• Competition for patient population
• Cost competitiveness
• Tier II and III Cities Demand for high quality
  and specialty healthcare services
• Advantage
• Low cost model (relative)
• High patient turnover
• Hospitals catering to specific services
• Geriatric care
• Care for lifestyle diseases like cardiology,
  diabetes etc
• Medi-city models
• Pathlabs and Diagnostic Services

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Healthcare Funds in India
Other multi sector funds in India Apax Partners,
Carlyle Group, Kohlberg Kravis Roberts,
Blackstone Group, and Barings Private Equity
Partners India
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Synergies with Real Estate Infrastructure
Increasing participation of Real Estate and
Infrastructure sectors in the Healthcare Industry.

• Investments into Greenfield medical development
  projects
• Punj Lloyd limited has invested in Global Health
  Limited for setting up the Medanta - MediCity
• Fortis Healthcare entered in to a JV with DLF and
  tie-up with Ansal Properties of Rs 6,200 crore to
  set up a chain of 200-450 bed hospitals in 31
  cities in India within three to five years
• Apollo Group plans to set up a wellness centre
  for the elderly in a tie-up with Lavasa Lake City
  for Rs 200 crore
• Hinduja Group has a tie-up with Dubai
  Government-owned Limitless LLC for around 1
  billion to start a chain of hospitals
• Proposed Real Estate Investment Trusts
• Corporate, tax- advantaged entities similar in
  structure, operation and regulation to Mutual
  Funds
• Invest directly in land and building
• Rent facilities to third-party healthcare
  providers
• Can directly reduce the burden of initial high
  capital expenditure
• Ex. Omega Healthcare Investors, Inc. (NYSEOHI)
  is a Real Estate Investment Trust ("REIT")
  providing financing and capital to the long-term
  healthcare industry with a focus on skilled
  healthcare facilities located in the United
  States.

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Multilateral Agencies
Multilateral agencies are investing in
commercially viable projects that contribute to
sustainable development.

• International Finance Corporation (IFC)
• Supports the growth of sectors in developing
  countries
• Primarily focused on the Health Education
  sectors
• Worlds largest investor in the private health
  sector in emerging markets
• Invests in commercially viable companies and
  projects that create an important public good in
  an economically, environmentally, and socially
  sustainable way.
• Global experience in the health care sector with
  financial, technical and strategic value add.
• Long Term Investor 8 to 15 years
• Wide range of innovative products services
  including Loans, Syndicated Loans, Equity,
  Credit guarantees, Risk sharing facilities
• Committed 200 million to Indias Healthcare
  sector
• Investments
• - Apollo Reach (Senior Loan- 35 mn, Convertible
  Loan- 15 mn,
• - Apollo Hospitals (Equity Investment of 20 mn)
• - Max (Phase III Equity Investment of 30mn,
  Phase II Equity Quasi-Equity Investment of
  66.7 mn, Phase I Local Currency A Loan of 18
  mn)
• Rockland Hospitals (Equity and Quasi-equity
  Investment of 22 million)
• Duncan Gleneagles Hospital ( Loan of 7 mn,
  Equity of 1 mn)

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Multilateral Agencies

• OPEC Fund for International Development (OFID)
• Provides financial assistance to developing
  countries stimulate economic and social progress
• Methods of concessional funding include public
  sector loans, trade financing, support to private
  enterprises and contributions to other local
  development organisations for on lending
• Committed 25 million in public sector loans to
  Indias Healthcare sector
• Asian Development Bank (ADB)
• Provides tailored financial products to its
  member countries
• Financial support is provided both at country and
  regional levels for health sector related
  interventions
• A recent example is ADB's approval of 50 million
  loan to the Philippines to improve health care in
  the Philippines through innovative financing
  mechanisms, better economic governance and public
  expenditure management, and partnerships among
  institutions.

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Socially Responsible Organisations

• Venture Funds
• Aavishkaar is a microfinance venture fund that
  invests in commercially viable enterprises that
  have a social impact
• Provides risk capital and support to early stage
  ventures across a number of sectors including
  healthcare
• Works closely with investee companies to ensure
  that commercial returns and social goals are
  being achieved
• Investees include Swas Healthcare, Vaatsalya
• Not-for-profit Organisations
• Charitable foundations
• Religious trusts
• NGOs
• Operate through grants and donations

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Public Private Partnership
Collaborative model between Private Players and
State Governments

• Allocation of Land and Building by the State
• Operation and infrastructure management
  undertaken by the private player
• Profits are shared in an equitable ratio
• Free of cost services to patients below the
  poverty line
• Efficient solution to the lack of quality care in
  Government hospitals
• Resolution of financial hurdles faced by private
  players
• Elucidation of long term funding problem
• Increased ability to raise capital from
  developmental organisations
• Successful Example Rajiv Gandhi Super Specialty
  Hospital
• Partnership between the Government of Karnataka
  and Apollo Hospitals Group
• Financial support from the OPEC Fund for
  International Development
• Provides low cost specialty care to families
  below the poverty line
• Land and Building provided by the State, 30 of
  profits retained by Apollo

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Other Funding Alternatives

• Project Finance from Commercial Banks
• Infrastructure status, facilitating easier
  credit appraisal
• Specific structured debt tailored to meet
  immediate and long term objectives
• Ex. Medanta MediCity received a tremendous
  response to its debt syndication of Rs. 500
  crores from PSU banks
• Venture Debt
• Usually part of a Series A or Series B investment
  and will be 20 to 30 of the total.
• Companies with strong financial backing, such as
  from VCs / Nonfunded companies that have a
  customer base.
• Includes a warrant, which is a right to buy
  company's shares at a fixed price.
• Working Capital Loans
• Equipment and Expansion Financing
• Guarantees
• Lien on equipment
• Mortgages on non-operating real estate
• Build to suit
• Real estate owned by investor, with a subsequent
  lease to the hospital operator
• B2B arrangement, not a marketable investment
• Securitization of Receivables

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THANK YOU!