Healthy capital

A leading Gulf private equity company is planning major investments in the Middle East’s healthcare sector

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By  David Ingham Published  April 11, 2006

Healthy capital|~||~||~|The region’s healthcare sector has become the focus of a prominent Gulf private equity company. UAE-based Injazat Capital has announced plans to invest up to US $100 million in regional hospitals and clinics through its Shefa Healthcare Fund.

Hussein Rifai, CEO of the Islamic finance house, says the fund will take equity stakes in up to nine hospitals and join them in a branded network. Hospitals within the Shefa universe will benefit from shared procurement, expertise and services, and patient referrals.

“Experience says that networked hospitals can operate better for a variety of reasons,” says Rifai. “You can afford to do things you wouldn’t otherwise be able to do as a single hospital.”

The sector is attractive to Injazat because growing populations and consumer awareness are fueling demand for healthcare services in the region. Injazat’s focus is on higher income patients, whom it believes are willing to pay fair prices for world class healthcare services.

“They require healthcare of a quality that is not available in the region,” argues Rifai. “From that perspective, this region is lacking. The focus of the Shefa fund is not on increasing the number of beds, it’s on taking existing hospitals and
raising them up to a global level.”

To that end, Injazat is looking to invest in existing hospitals with a solid reputation, progressive management and shareholders open to bringing in outside investors. Injazat’s commitment will vary according to the existing shareholder
structure, but it will always aim to be the majority or single largest shareholder.

In accordance with Islamic financial principles, the amount of debt an Injazat company can hold is restricted to a certain portion of its paid-up capital. Whatever the size of the equity stake that Injazat takes in a business, it will always be looking to keep active owners involved in order to ensure continuity.A similar approach will be taken in branding, especially where hospitals are well established and trusted. The original name will therefore most likely be maintained, with a reference to Shefa included in the hospital’s full title. “We are looking for hospitals with an established brand that people already trust,” explains Rifai.

Once Injazat has made its investment, hospitals must be brought up to what Rifai describes as international levels of accreditation. “If that means our target hospital has to be shut down for four months for refurbishment, we’re going to do that,” he says.

Assisting Injazat in this job will be Dawee Medical, a UAE-based healthcare management firm, and Victorian Healthcare Association, an Australian group that manages around 11,000 hospital beds worldwide. Once this process of accreditation and, if necessary, refurbishment has been completed, the hospital can then begin to benefit from being part of the wider Shefa network. One of the main benefits will be shared procurement. Instead of each hospital ordering supplies as an individual entity, the network will place orders centrally for all its properties. This will drive down the unit cost of supplies and help reduce hospitals’ operating costs.
“If I can remove one cent on every cotton ball I use, it’s going to make a difference,” says Rifai. Group-wide deals will also be negotiated with insurance companies.

Shefa hospitals and their patients will both benefit from the ability to refer patients within the network. Hospitals will also be able to buy equipment they couldn’t otherwise afford, or justify, knowing they have access to a larger patient pool. “A hospital might make a multi-million dollar investment in a piece of medical equipment only to find out that their patients can utilise only 20% of it,” says Rifai. “In this case, we could refer a patient. This would be in circumstances where he or she needs long-term treatment or a major operation.”

A patient with a particular complaint could also be referred to another hospital in the network that may be better placed to deal with that condition. Alternatively, a Saudi or UAE citizen vacationing in Egypt or Lebanon could make use of a Shefa hospital in those countries.By providing consistent service across a network of hospitals, Shefa hopes to save patients the hassle of going abroad for procedures and putting time and effort into locating specialist doctors. “The reason people go overseas for services is not that they want to,” Rifai says. “There is an inconsistency in the delivery of
service; treatment tends to be doctor dependent. What we’re hoping is this model will ensure there is a consistent quality delivered. That will encourage people to stay here for treatment.”

Injazat believes that its background as a venture capital company makes it well placed to help hospitals improve their operational efficiency. Rifai is clear that Injazat does not aim to overhaul management of its assets, but that it could help a hospital bring in a CFO or operations director to increase efficiency.

Injazat’s credentials
Injazat established itself in the Middle East’s private equity market through its Injazat Technology Fund, which has invested around US $50 million in tech firms across the region. According to Rifai, the fund realised an IIR of 43% in 2005 and is so far running at a total return of around 130%.
The fund has already exited several of its investments, the most notable one being its private sale of Raya Holding before its recent stock market listing. Injazat is currently considering increasing the tech fund’s capital, possible by listing it on a regional or international market.
The minimum investment in the Shefa fund is half a million dollars for individuals and one million for corporates. Injazat hopes that investors will realise a return of around 15% per annum. In three to four years, Rifai aims to have “a reasonably sized healthcare company that we will float”.
The Shefa fund’s initial remit is to create a network of nine hospitals located in five or six countries, most likely to be the UAE, Saudi Arabia, Egypt, Lebanon, Jordan and one other Gulf country. If the fund’s capital is expanded or a second Shefa Healthcare Fund is launched, that initial nine could be expanded towards thirty hospitals located right across the Arabic speaking region. Another possibility is to create Shefa-branded polyclinics.
In a place like Dubai, for example, there could be around five of these clinics located throughout town, with patients able to go to them as a first port of call. Patients could make use of the main Shifa hospital if further treatment is needed or in case of an emergency. “This would reduce the pressure of the day patients on the hospital and make services more convenient,” Rifai says.

At the time of writing, Injazat was holding
discussions with several hospitals and was set to announce its first investments. The Middle East will soon see what effect a profit-driven, private investment fund will have on its healthcare sector.||**||

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