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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

China Isotope & Radiation, which manufactures diagnostic and therapeutic radiopharmaceuticals products, has launched its HK$1.9 billion (US$247 million) IPO on the Hong Kong Stock Exchange.
Malaysian multinational PRG Holdings has extended the deadline for its M$18.3 million (US$4.6 million) acquisition of O&G focused private medical services provider Roopi Medical Centre.
Hong Kong-listed WuXi Biologics, a subsidiary of WuXi PharmaTech, has started the construction of an integrated biologics conjugate solution centre in Wuxi city.
RHT Health Trust, the first business trust listed on the Singapore stock exchange with a portfolio comprising healthcare assets in India, has confirmed that it has received all outstanding amounts due from India’s Fortis Healthcare for the past financial year.
Shares in Ramsay Health Care, Australia’s largest private hospital operator, slumped today after the group cut earnings guidance. It flagged up “onerous lease provisions” and asset writedowns on a number of its hospitals in the UK.
Following Monday’s 5.9 magnitude earthquake which struck Osaka, Parkway Life REIT, which is owned by IHH Healthcare, has confirmed that its Japan asset managers, operators and residents at its Japan healthcare facilities are accounted for with no reported injuries.
Singapore-listed property developer Perennial Real Estate has incorporated a new subsidiary in China. Perennial (Shanghai) Health Management will be involved in the management of its healthcare business in Shanghai.
Yestar Aesthetic Medical Group, the second largest private aesthetic medical institution group in China, is planning an IPO on Hong Kong’s mainboard. CICC is sole sponsor to the deal.



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