Toro Finserve LLP Managing Partner Kapil Khandelwal has launched India Healthcare Opportunities Fund (IHOF) as SEBI Alternative Investment Fund under Category 2 with a corpus of $250 million and an additional leverage of $250 million.
The $500-million fund will invest into stabilised healthcare real estate, providing sticky long term leases from stabilised assets such as hospitals, diagnostic centres, rehab facilities and assisted living facilities with established healthcare operators in Tier I and Tier II cities in India.
“Total value of healthcare real estate already built is of over $120 billion with less than 5-7 per cent operating under asset light model. Further $200+ billion is expected to be spent on development of healthcare infrastructure for India to come to the international norms in terms of real estate to get to Indian Government’s target of three beds per 1,000 people by 2025,” said Khandelwal while outlining the investment opportunity.
“Our fund expects to create and invest in healthcare infrastructure where institutional investments in healthcare infrastructure has been shy and selective around a few chains of private hospital so far.Indirectly, we are also creating social impact through raising the supply of scarce healthcare infrastructure in our country,” he added.
The IHOF has an experienced management team with in-depth understanding of healthcare and real estate. “Our team has worked on over $42 billion of real estate transactions and $2 billion of healthcare transactions globally,” said the investment and healthcare industry veteran.
The fund’s illustrious investment and advisory committee includes Dr Arvind Lal, Chairman, Dr Lal’s Pathlabs; Kewal Handa, Ex Managing Director, Pfizer, India; Dr Sampath Shivangi, Ex Chairman, Association of American Physicians of Indian and Pravasi Bharat Awardee, 2017; and Dr Sathya Kallur, entrepreneur and dentist to celebrities in the US and founder of Swiss Smile in India.
The fund has commitments of $110 million from some state governments in India, UHNIs, Fund of Funds from abroad. It is expected to start its formal road show in India and abroad in June-July 2017. IHOF is in discussions with various banks and financial institutions for lease rental discounting (LRD) and leverage and distribution of the fund.
The fund is currently evaluating deals worth $200 million in Indian hospital chains, assisted living and diagnostic centres to issue term sheets.
Private healthcare operators want to expand to underserved or profitable areas to widen their reach, but have limited access to affordable capital. Raising finance from private equity firms and financial investors is very expensive and IPO is not an option for many of the hospital operators.
Banks may provide loan against property to the operators, but generally the amount is not adequate (restricted to 50-60 per cent of the property value) for an operator to expand and stabilise operations in a new location.
“In the US, the healthcare industry makes up an astonishing 17.3 per cent of the nation’s economy, whereas in India it contributes only 4.1 per cent. Growth drivers seem to be perfectly aligned now more than ever, owing to reforms and a promising healthcare policy,” observed Khandelwal.
The Ministry of Heath, Government of India announced National Health Policy 2017 to stimulate investments and growth of infrastructure in healthcare in India. But Khandelwal believes there are limitations around the forms of capital the healthcare industry in India has been able to raise through banks, financial institutions, private equity.
“Our model of sale-lease back transaction of real estate assets for medical entrepreneurs who are looking to expand their healthcare business by either set up one or a chain of hospitals, old-age homes ordiagnostic centres in the country. This would allow them to free up capital to deploy in their business and focus on better returns in their business of healthcare services delivery,” he said.
Citing the recent listing of IRB Infrastructure Developers Limited as an Infrastructure Investment Trust (“InvIT”) with IPO issue size of Rs 43 billion ($0.64 billion) at an Enterprise Value of Rs 59 billion ($0.88 billion), Khandelwal added, “Ultimately, our goal is to be India’s first healthcare REIT and list our fund in next four to five years on Indian or Singapore Stock Markets and be a source of patient capital to the private for-profit Indian healthcare sector.”
The fund has also built out a consortium of partners which are going to deliver healthcare infrastructure, cheaper, better and faster to reduce the time to market and operating costs for the healthcare facilities invested by the fund.
Declining to provide details on the partners that the funds has created, Khandelwal said, “One of the major pain points for developing healthcare real estate is the time to build and the regular operating costs for running and maintaining these facilities. Our plans are to reduce these by half through our strategic partner ecosystem of our fund.”