Harry J re-enters hospital biz with Rs.1.6bn acquisition

• Melstacorp subsidiary buys 70-bed Browns Hospitals in Ragama
• Marks Harry J’s re-entry into hospital biz after losing Apollo Hospitals
• Challenging regulatory environment prompted Browns to exit hospitals biz
• Officially opened in 2015, Browns Hospitals currently has book value of Rs.1.35bn
• Set to report highest-ever profit of Rs.120mn for FY20; 9-month revenue at Rs.800mn

Business tycoon Harry Jayawardena last week announced his re-entry into Sri Lanka’s healthcare scene with the acquisition of a 70-bed multispecialty hospital in Ragama for Rs.1.6 billion.

Jayawardena controlled-Melstacop PLC on February 20 said its fully-owned subsidiary, Melsta Healthcare Colombo (Pvt) Ltd., acquired the entire shareholding of Browns Health Care (Pvt) Ltd., from Brown & Company PLC for a consideration of Rs.1.6 billion.

“Browns Health Care (Pvt) Ltd is in the business of operating a multispecialty hospital under the brand of ‘Browns Hospitals’ and wholly owns Browns Healthcare North Colombo (Pvt) Ltd,” a stock exchange filing by Melstacorp said.

Browns Healthcare North Colombo (Pvt) Ltd., which was originally formed as a Board of Investment (BOI) company under Browns Health Care (Pvt) Ltd., currently holds some assets of Browns Hospitals. The new owners are likely to merge Browns Healthcare North Colombo (Pvt) Ltd with the parent.

Sources familiar with the deal said the Browns Group’s decision to exit the hospitals business was prompted by the increasingly challenging regulatory environment in recent years amid the government mandating price reduction of drugs, temporary price ceilings on certain tests and pursuing price controls for private hospital room rates and charges for basic procedures.
Also, the healthcare industry is grappling with a shortage in skilled professionals including doctors, specialists, qualified pharmacists, nursing staff and technical staff.

Browns Hospitals was officially opened in 2015 and currently has a book value of Rs.1.35 billion.  The hospital, which had a few buyers lined up, is set to record its highest ever profit figure of Rs.120 million for FY20.

For the nine months ended December 31, 2019, Browns Hospitals, which has a staff of over 300, has recorded a top line of Rs.800 million and the profit figure stands
at Rs.80 million.

Although the sale marks a complete exit for Browns Group from the healthcare business for now, the diversified business group controlled by Ishara Nanayakkara, is not ruling out a future re-entry with positive developments in the regulatory environment. Nanayakkara-controlled LOLC Group recently sold its 70 percent stake in Cambodia’s largest microfinance company, PRASAC, to Korea’s biggest commercial bank, Kookmin, for a staggering US$ 603 million, or Rs. 110 billion.

Hospitals, which typically take 3 to 4 years to break even, is considered a very capital-intensive business as large amounts of money need to be invested in latest medical technology, hospital infrastructure, staff training etc at regular intervals. 

However Jayawardena, after losing control of the then Apollo Hospital (now Lanka Hospitals PLC), following a historic court ruling, was biding time to re-enter the sector, as he set up a subsidiary under diversified Melstacorp in August 2018 to undertake healthcare sector investments. 

Melstacorp recently launched a laboratory service under Melsta Laboratories as the pioneering stand-alone laboratory operation in Sri Lanka.

The participation of private sector providing healthcare services began in 1980s when government-employed doctors were allowed to provide consultation and treatment and maintain private healthcare institutions. Since then, healthcare in the private sector has grown rapidly.

At present, private healthcare continues to play a vital role in the sector, providing an estimated 65 percent of out-patient care, and 15 percent of in-patient care.

Demand for private healthcare in Sri Lanka is expected to increase with rising per-capita income levels, urbanization, ageing population and rising incidence of non-communicable diseases (NCDs).