19-12-2008: Sime Darby Healthcare in expansion mode

by Thomas Soon
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KUALA LUMPUR: Sime Darby Bhd was close to selling its healthcare division, including Sime Darby Medical Centre (previously called Subang Jaya Medical Centre) a few years ago, but the group is now on the verge of scaling greater heights in the business.

This follows its proposal to acquire a 51% stake in the National Heart Institute (IJN), a move that has received the agreement in-principle from the government. Both Prime Minister Datuk Seri Abdullah Ahmad Badawi and his deputy Datuk Seri Najib Razak yesterday gave their blessings for the proposed transaction.

The due diligence exercise is expected to be carried out at the start of the new year, and the whole exercise could be wrapped up in no less than five months. The purchase consideration will be paid in cash.

Sime Darby’s previous management had decided to dispose of the healthcare business, but its current president and group chief executive Datuk Seri Ahmad Zubir Murshid reversed that when he was appointed to helm the conglomerate in 2004.

“I see a vast potential in the healthcare business,” Ahmad Zubir said yesterday, in explaining his decision then to make Sime Darby Healthcare a core business and the proposal now to acquire IJN.

Describing it as private-public sector partnership, he said the commercial attractiveness must be seen from the perspective of Sime Darby’s overall expansion plan in the healthcare industry.

As at end-2006, IJN had a paid-up share capital of RM221 million and shareholders’ equity of RM380 million. Ahmad Zubir vowed to honour IJN’s social obligations and that Sime Darby would enhance its infrastructure and human capital as well as expand its reach.

Many other organisations were believed to have expressed interest to the government in acquiring IJN, from which stemmed the idea among policymakers that a government-linked company such as Sime Darby should take the lead.

The world’s largest listed plantation group, with diversified businesses, submitted a formal proposal to acquire a 51% stake in IJN a few months ago, according to Ahmad Zubir.

Two days after The Edge Financial Daily first reported of the proposal and a day after Sime Darby confirmed the report, the group received an official letter from the Economic Planning Unit yesterday informing it of the government’s nod in-principle.

Ahmad Zubir said as stated in the letter, the agreement was subject to three conditions — valuation, a five-year business masterplan for IJN and the group’s commitment to continue fulfilling IJN’s social obligations to the people.

“This is a golden opportunity for Sime Darby. They (IJN) have their strength and we have our strength. We can work together,” he told a media briefing here yesterday.

“We are not looking at IJN now, but at IJN in the future. IJN is a national icon. We will replicate IJN in new areas,” he said.

Ahmad Zubir cited IJN’s brand and reputation, the institute’s full-paying patients, the synergies, vast opportunities in the sector, and the group’s overall healthcare plan, including the lucrative medical tourism segment, as the commercial reasons for the proposed acquisition.

“There is demand from overseas,” he said, adding that he did not believe medical tourism contributed significantly to IJN’s business now. He said IJN would be part of an aggressive plan that would see Sime Darby Healthcare and IJN widen their reach in the domestic and regional markets for the brands and their staff.

Ahmad Zubir said there would also be vast career opportunities for IJN management and staff to spread their wings as the Sime Darby group was now actively eyeing opportunities in the region, including Thailand, Indonesia, Vietnam and China.

“We are in talks with a few hospitals (for acquisition of controlling stakes) in the region,” he said, adding the economic downturn presented opportunities for Sime Darby, with its strong balance sheet. He added that the group was also planning to expand to Penang and Melaka.

Apart from the medical centre in Subang Jaya, Sime Darby owns Sime Darby Specialist Centre Megah and Sime Darby Nursing & Health Sciences College. It is building an additional 300-room RM150 million healthcare centre in Desa Park City, Kuala Lumpur, scheduled for completion in three to four years.

Ahmad Zubir said a near-term plan would be for IJN to have a branch within the group’s proposed Medical City in Labu, Negeri Sembilan, which was expected to be launched towards the middle of next year.

The ambitious 15- to 17-year, 30,000-acre Labu development project will also include self-contained cities of entertainment, education, hi-tech, recreation and sport. The present site is now Sime Darby’s Labu and Tanah Merah estates.

“These will be centres of excellence and they include medical tourism, housing and recreation for retirees,” Ahmad Zubir said.

Without IJN, Ahmad Zubir said Sime Darby would have opted for the construction of a new heart centre of its own, which may even lure existing talent away from the national institute. “We found the acquisition of IJN is the best option. We want to attract and recruit talent to IJN,” he said, adding that existing staff would be better remunerated. He said there would be no major management revamp at IJN.

“We are already a group of the rakyat. We have 10.5 million stakeholders. We will continue to fulfil our social obligations to the rakyat. It is what our (Sime Darby) board and what the government want us to do.

“We will to continue to look after the interest of the low- and middle-income groups as well as civil servants,” he added.

Ahmad Zubir said that Sime Darby’s own medical centre was already carrying out corporate social responsibility programmes.

Nonetheless, questions will continue to be asked if Sime Darby would be able to balance that well enough with its profit taking enterprise.