Thursday, September 13, 2012

IHH ... Sep12

Its foreign exchange exposure risk remains a concern although it could be mitigated if and when the debts are pared down from its initial public offering (IPO) proceeds.

It was reported that IHH's Turkish arm Acibadem Holdings had reported losses due to foreign exchange losses on an unhedged loan amounting to US$460.7mil (RM). The loan, which is serviced in Turkish lira, has a US$257.1mil payment due in 2015. The remaining RM203.6mil is an amortised loan that will be repaid in semi-annual payments until 2018.

Over 90% of the IPO proceeds was proposed to be utilised for the repayment of bank borrowings. It is notable that the group's total long-term borrowings stand at RM7.18bil as at June 30 2012.

There are no concrete plans as yet, but management is looking into it. Although the risk is real, the extraordinary gain from the sale of the medical suites at Mount Elizabeth Novena Hospital will help. The best solution for the company would be to hedge against the debt. The debt was inherited when IHH bought Acibadem.

Meanwhile, the US$500mil forex risk should not be a big problem for the company. For a company as big as IHH, they can afford it. Every company which ventures overseas will be faced with forex risk. It should not haunt IHH unless the exchange rate between the dollar and the lira fluctuates drastically. The forex risk is not a huge concern as IHH's management has been quite clear on managing the exposure to specific currencies in the countries it operates in.

Expect the US$500mil debt to be refinanced, most likely in the Singaporean or Malaysian market to take advantage of the interest rate savings.

Although IHH is Acibadem's major shareholder with a 60% stake, the decision on how the forex risk exposure is managed will be a collective decision with remaining shareholders Khazanah Nasional Bhd and Acibadem chairman Mehmet Ali Aydinlar. Khazanah holds 15% in Acibadem while Mehmet Ali holds 23.3%.

The unrealised forex could also swing the other way. The exchange rates are increasingly trending in favour of the lira.

Although its Turkish operations have been growing in number of inpatient and outpatient admissions, Acibadem's earnings are largely dependent on the year-end US$ to Turkish lira exchange rate and its impact on the unhedged borrowings.

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