Apollo Hospitals in Rs 550 cr deal with Kohlberg Kravis Roberts

The promoters of Apollo Hospitals have entered into a complicated Rs 550 crore deal with global investment managers Kohlberg Kravis Roberts (KKR). While it does not infuse new funds into Apollo Hospitals, it will help PCR Investment Ltd, the family holding company of the Apollo promoters reduce its debt from Rs 700 crore to Rs 150 crore.

PCR Investment Ltd, which currently holds 18.42 per cent stake in Apollo Hospitals (valued at Rs 2300 crore), has taken on a structured debt from KKR, according to a spokesperson of the company. The advantage for KKR is that it can convert this into equity if it chooses to and get around four per cent stake in Apollo Hospitals after five years. It also has the option of instead of a cash transaction with the promoters in lieu of the stake.

The Reddy promoter family of Apollo Hospitals holds a total around 35 per cent in the company, of which 18.42 per cent is held by PCR Investments and the rest by individual family members.

The key benefit for the Apollo family promoters is that not only do it get to reduce the debt but also does this relatively cheaply. This instrument carries a redemption premium with a floor of 7.25 per cent, which, according to the PCR spokesperson, makes it much cheaper than repaying a normal debt where almost a double interest outflow would have resulted. Plus, PCR Investments gets a window of five years to plan other investments since the burden of servicing the debt would be reduced substantially.