Ramsay Health Care is just months away from making its first play in China, after signing a provisional agreement with an operator of five hospitals in the city of Chengdu.
Along with its joint venture partner Sime Darby, Ramsay will partner with Chinese company Jinxin. Ramsay will have a 25 per cent stake in the final joint venture, subject to due diligence.
Ramsay is undoubtedly a high-quality business. But the stock is anything but cheap. Photo: Bloomberg
Chengdu has a population of 14 million people and lies in the 85 million person-strong province of Sichuan, in China’s south.
Ramsay chief executive Chris Rex told the company’s annual meeting in Sydney on Thursday that most foreign hospital operators had focused on expats or serving only wealthy Chinese. But Jinxin serves a mix of public and private patients, he said.
Ramsay Health Care chief Chris Rex took home $30.8m in realised pay in 2013-14. Photo: Jim Rice
Mr Rex told The Australian Financial Review that Jinxin, which was set up by a group of doctors, had four hospitals, including a 2500 bed mental health facility. The company is also building a new women and children’s hospital, which will have about 500 beds.
“What they see in us is that expertise and that ability to bring people to bear to raise clinical standards,” he said. “For the first instance is let’s see how we go together, but the opportunities both in the city and then beyond in the state are potentially enormous.”
Mr Rex said he hoped the deal would be finalised early in the new year.
Ramsay established a 50-50 joint venture in Asia with Malaysian conglomerate Sime Darby in July 2013. The group combined Sime Darby’s three hospitals in Malaysia with Ramsay’s three hospitals in Indonesia.
Mr Rex said until this point the group has been focused on “getting to know each other” while also looking at opportunities in China. “I’m delighted to tell you that we are starting to make some progress here,” he told the meeting.
The booming Chinese economy means there is a “significant amount of trickle down wealth” to its citizens, Mr Rex said.
Every day there are “thousands more people” who are financially capable “to take part in the developed world economy”, he said.
The Chinese joint venture will be held in an equal split between Ramsay Sime Darby and Jinxin. Mr Rex emphasised that Ramsay’s initial investment would be “relatively modest”.
“If we are able to execute this transaction it really will be a first of its kind,” Mr Rex said.
The Chinese government was supportive of the deal, he said.
Ramsay’s new chairman Michael Siddle, who took on the role after the passing of company founder Paul Ramsay in May, said the board urged Mr Rex to “tread carefully” in China.
Two resolutions at the meeting to give performance rights to Mr Rex and finance director Bruce Soden worth $11 million and $4.9 million respectively were hit with significant protests of about 30 per cent of votes cast against.
Ownership Matters partner Dean Paatsch said the proxy advice firm advised clients to vote against the resolutions because half of the total grant is linked to undisclosed earnings hurdles.
Mr Paatsch said that if the Paul Ramsay Foundation, which controls about a third of the company, had not voted the resolutions would not have passed. “It was a resounding defeat by external investors,” he said.