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Last Updated : Oct 07, 2019 09:15 PM IST | Source: Moneycontrol.com

Exclusive: Aurobindo Pharma promoters open new front in Continental Hosp founder vs IHH Healthcare fight

The Aurobindo family will fund gastroenterologist Gurunath Reddy buy out stake held by IHH Healthcare, and ring-fence Continental Hospitals from other prospective buyers.

Viswanath Pilla @viswanath_pilla

Promoters of Aurobindo Pharma are going to fund entrepreneur Dr T Gurunath Reddy in his buy-out of stake held by Parkway Pantai, backed by IHH Healthcare, in Hyderabad-based Continental Hospitals. The deal is valued over Rs 600 crore.

It will be a sort of comeback for Dr Reddy, the founder of the company who had lost control of Continental Hospitals despite being the major shareholder.

Continental Hospitals is at present majorly owned and controlled by Gleneagles Development Pte Ltd (GDPL), a subsidiary of Parkway Pantai. The Singapore and Kuala Lumpur-based healthcare provider is owned by the IHH.

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The promoters of Aurobindo would be doing the deal in their personal capacity, one of the sources told Moneycontrol. The funds will help the gastroenterologist, Reddy, to ring-fence Continental Hospitals from other prospective buyers.

The modalities of the deal are being finalised. It is still not clear if the Aurobindo Pharma promoters would take control of Continental, after the deal, or remain as investors.

“IHH Healthcare does not comment on market speculation and we will update the market if there are any material developments,” an IHH Healthcare spokesperson said in a statement.

Neither Gurunath Reddy nor the Aurobindo Pharma promoter family could be reached for a comment.

An email sent to P.V. Ram Prasad Reddy, the promoter and non-executive director, remained unanswered at the time of publishing the story.

Ram Prasad Reddy and his family members 51.87 percent stake in Aurobindo Pharma. The family has interests in real estate as well.

The holdings

Parkway holds around 62.23 percent stake in Continental Hospitals through GDPL. The remaining stake is held by Gurunath Reddy and family, who are the company’s original promoters.

GDPL, a 100 percent step-down subsidiary of IHH Healthcare, bought a 51 percent stake in Continental Hospitals in March 2015 by infusing equity of Rs 188.3 crore.

Continental Hospital has a land area of 2.95 acres and built-up area of 1.3 million square feet located in the prime location of Gachibowli, Hyderabad.

Currently, the multi-specialty hospital has a capacity for 300 beds, and has license to expand up to 750 beds capacity.

Acquisition that never delivered

Continental Hospitals has been a difficult experience for IHH Healthcare since it bought the stake in 2015.

Differences cropped up between Gurunath Reddy, the original promoter and the Parkway management, within no time.

Reddy is said to have developed grouse against Parkway for sidelining him and his team in the matters of running the hospital.

The matters hit the nadir in May 2017, when Parkway allotted itself an additional 1.3 per cent shares, while increasing its stake to 52.3 percent and diluting other shareholders holding to 47.7 per cent. Parkway also replaced Reddy by Tan See Leng, who is the MD and CEO of IHH Healthcare and Group CEO & MD of Parkway Pantai.

To further consolidate its hold, it proposed a rights issue, but it had to wait for several quarters as Gurunath Reddy challenged it in the the National Company Law Tribunal (NCLT).

In his petition before NCLT, Reddy accused Malaysian healthcare provider for alleged violations of shareholders agreement and showing losses and exerting pressure on other shareholders to dilute stake.

The petition was dismissed by NCLT in July 2018.

Parkway, in 2018, invested Rs 140 crore in the rights issue, increasing the stake from 53.13 percent to 62.23 percent in Continental Hospitals.

But, the increase in ownership did not bring any relief as the Continental Hospitals continued to incur operating losses arising from the challenges faced in its business operations.

IHH took impairment of Rs 112 crore in fiscal 2017 on losses arising due irrecoverable dues. The hospital is continuing to lose Rs 2-3 crore every month.

An alleged kidney racket in 2017 linking certain members of hospital staff also rocked the reputation of the hospital.

The hospital denied all such allegations.

Sources say frequent changes of top management and big doctors leaving the hospital have made things complicated for Parkway.

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First Published on Oct 7, 2019 12:54 pm
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