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Australia's largest private hospital operator Ramsay Health Care (ASX: RHC) plans to bulk up its balance sheet by $1.4 billion to give the flexibility needed for riding out the Covid-19 pandemic and beyond.
While the National Cabinet agreed yesterday to ease restrictions on category 2 and some category 3 elective surgeries, Ramsay has seen the suspension of most elective surgery in the 11 countries where it operates.
Faced with an uncertain outlook, the group has today announced a $1.2 billion institutional placement underwritten by JP Morgan, to be followed by a share purchase plan (SPP) for an additional raise worth up to $200 million.
The placement will be at $56 per new share, representing a a 12.69 per cent discount to the last trading price and diluting current ownership by 10.6 per cent.
At the end of December 2019 Ramsay Health Care had $433 million in cash and cash equivalents.
"The equity raising will strengthen Ramsay's balance sheet and liquidity position, as well as increase financial flexibility during the unprecedented operating environment," says RHC managing director Craig McNally.
"More importantly, it will ensure that we can continue to pursue our growth initiatives and position us to take advantage of other growth opportunities that may arise.
"Private hospital operators, including Ramsay, are making an important contribution in terms of supplementing the broader public health system in fighting the COVID-19 pandemic."
As part of its capital management initiatives, Ramsay has also today announced that lenders to the Ramsay Funding Group have provided consent to amend or waive key banking covenants tests through to December 2020.
The combination of the equity raising, covenant waivers and amendments, and the dividend suspension is expected to provide Ramsay with a stronger balance sheet, with lower leverage and increased liquidity.
"The support Ramsay's lending group has provided by agreeing to these covenant test waivers and modifications will further strengthen our financial flexibility during the challenging operating environment," says McNally.
"We believe this demonstrates our lending group's confidence in the longer term outlook for Ramsay."
Adapting to Covid-19
The company says its 72 hospitals in Australia (out of 500 globally) are prepared for the reintroduction of some surgeries that will be allowed after the ANZAC Day long weekend.
The company will now work closely with our doctors on a staged and controlled reintroduction taking into consideration the safety of patients and healthcare workers, as well as the capacity constraints imposed by the government.
Ramsay adds discussions are progressing with several state governments about the capacity and support it can provide.
As part of the suspension arrangements, contractual or legislative support has been or is proposed to be provided by governments and health authorities to reserve capacity to treat Covid-19 patients.
In return for reserving this capacity, governments and health authorities have agreed to a core principle of meeting private hospital operators' agreed operating costs or, in the case of France, providing approximately 85 per cent of revenue from the previous corresponding period in calendar year 2019.
"While the effect of these arrangements is that profits cannot be generated during the period of their operation, the fact that governments and health authorities are contributing to the ongoing viability of private hospital operators demonstrates the important role private hospitals can play in conjunction with public health systems," says McNally.
"This government support and the capital management initiatives will ensure Ramsay's ability to maintain its extensive hospital platform intact and will position the company to support previously deferred elective surgeries as the operating environment normalises."
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