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Thu 1 Feb 2007 12:00 AM

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Healthy rates of return

Injazat Capital, a UAE-based private equity firm, wants to spend around US $100 million buying stakes in up to ten regional hosptials. Fawzi Zeine, principal of Injazat’s Shefa Healthcare Fund, explains why the sector is so appealing to investors and what hospitals stand to gain from his company’s involvement.

The primary aim of a private equity company is to provide a high level of return on its investors’ money. A healthcare institution’s first and foremost goal should be to provide a high standard care of patients. Can the two things ever be reconciled?

According to Fawzi Zeine, the answer is: most definitely. Private hospitals, he points out, have to make money to survive. “If they don’t,” he says, “they close.”

Zeine is principal of the Shefa Healthcare Fund, a private equity investment fund run by UAE-based Injazat Capital. The fund’s goal is to invest up to US $100 million in around ten healthcare providers in Jordan, Lebanon, Egypt, Saudi Arabia and the UAE.

Injazat plans to join those institutions together as a branded hospital network where they will enjoy benefits such as centralised procurement, referrals and asset sharing. At the end of a 4-6 year period, the private equity firm intends to sell off the asset through an IPO or sale. In the process, it aims to deliver the equivalent of a 15% annual return to its investors.

For a regional healthcare provider, an injection of cash may be appealing, but what other benefits are there to be had from working with a private equity investor? The Shefa Fund believes that its network approach, where institutions pool resources and buying power, will have a massive effect on its partners’ productivity and efficiency.

“We’re looking into establishing a network of hospitals under the Shefa brand,” Zeine explains. “There is a lot of added value in doing this. When you have a network, you have more beds so procurement economies of scale are different; there’ll be a lot of revenue enhancement, cost reduction and improved asset utilisation. With 2000 beds, we will be able to get big reductions on prices, which will improve the hospitals’ balance sheets.”

So instead of each hospital ordering supplies as an individual entity, the Shefa network will place orders centrally for all its member properties. This will drive down the unit cost of supplies and help reduce each hospital’s operating costs.

Group-wide deals could be struck with insurance companies and patients could be referred within the network. The Shefa Healthcare Fund would also be in a position to buy an expensive piece of equipment that one hospital could not afford on its own and utilise it across all the hospitals in its portfolio.

A key part of Shefa’s vision is to be able to provide treatment for which patients currently have to travel outside the region. “People are not travelling abroad to get medical care as much as before, they are tending to stay and get their medical treatment here,” says Zeine. “But, they are looking for better quality.”

One of the fund’s ideas is to regularly bring in specialists from outside the region to perform procedures and share knowledge. With one hospital, the cost would be prohibitive, but with several hospitals the idea is much more affordable and practical.

“With the right investment and focus, it will be possible for all procedures to be done in this area,” argues Zeine. “In Jordan, hospitals bring in doctors from the United States to perform surgeries and help train staff. This would be an added value of being in the network”.

Shefa’s idea of what it wants to achieve is clear, so what are the investment targets that the fund is looking at? Zeine says he is focusing on, “prime hospitals” in the Shefa Fund’s five target countries.

The target investment for Shefa is a general or speciality hospital with 80-120 beds. Those hospitals will typically have been founded and built by one doctor who now sees the benefits of bringing in outside money and expertise

Up to US $10 million will be invested in the equity of each hospital and no more than US $25 million will be invested in each of the five countries. Zeine says Injazat has signed a number of MoUs with providers in each of the target countries and is now in negotiations that could end in a number of investments being made.

Once an investment is made, Injazat will look to offer advice and assistance that will help the hospital to up its game. “We don’t want to get very involved in the day to day operation,” explains Zeine. “We want to be involved at the board level, where there is a good hospital already running, but it needs financing and improvement.”

One reason the Shefa Fund thinks it can assist hospitals is its partnership with the Victoria Healthcare Association, an Australian healthcare firm that manages around 11,000 hospital beds. Victoria will help Injazat with its due diligence, assessing the quality of each individual hospital’s equipment, management and procedures.

“That is the first phase. In the second phase, they have many other roles to play in planning and consulting,” says Zeine.

“If we want to buy new medical equipment, for example, they can help us in negotiations with suppliers because they have 160 hospitals and can obtain better pricing. Also, they will be helping with IT systems and in the operational management.”

In other words, Victoria can play a key role in improving the quality of the acquired hospitals and opening up more business opportunities for them.

As an investor with an eye on returns, one part of the Injazat plan is to separate hospitals’ operations from their physical assets. “We’re going to securitise the land and buildings and invest only in operations,” says Zeine, meaning that hospitals may end up selling off any land and buildings they own and then leasing them back.

Securitisation, Zeine claims, is no longer an alien concept, saying that it is a common approach in the regional leisure industry. “It has become a well known concept. It’s what major hotels do these days. They’ve stopped building their own premises, they’re just securitising and managing buildings.”

Hospitals approached by Injazat will be dealing with a company that has succeeded before. The investment company’s previous venture was the Injazat Technology Fund, which has invested around US $50 million in tech firms across the region. In 2005, the fund realised an IRR of 43% 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, an Egyptian IT firm, prior to its recent stock market listing.

All of Injazat’s investments are Shariah-compliant, meaning that companies dealing in alcohol, munitions, cigarettes or gambling are excluded from investment. There is also a stipulation that a company’s debt should not exceed 30% of its equity.

The identity of those putting money into the fund is not disclosed, but Zeine says that it is mostly individuals and institutions with experience in the healthcare sector. For those that want to take part, US $12.5 million will deliver a seat on the board of the Shefa Healthcare Fund. The minimum investment is US $500,000 for individuals and US $1 million for institutional investors. Around US $50 million has already been committed and fundraising efforts are ongoing.


Injazat Capital, a private equity company that invests according to Islamic guidelines.


Shefa Healthcare Fund: a US $100 million investment fund that will buy stakes in around ten regional hospitals.


To upgrade the hospitals and join them in a network where they can share resources and benefit from group purchasing power.

Minimum investment:

US $500,000 for individuals and US $1 million for institutions.

Expected return:

15% year on year.

End objective:

Flotation or sale of the hospital network in 4-6 years time.

What is private equity?

Private equity (PE) refers to an equity investment in an asset in which the equity is not freely tradable on a public stock market. Passive investors can put money into private equity funds, which then buy stakes in target companies.

Private equity funds typically have a large degree of involvement in the management of the companies in which they invest.

PE funds are generally organised as limited partnerships controlled by the private equity firm acting as the general partner. The fund receives capital from investors such as pension funds, financial institutions and wealthy individuals.

These investors become passive limited partners in the fund partnership and when the general partner identifies an investment target, it can call on the required equity capital. At this point, each limited partner releases a portion of the capital it has committed to the fund.

Investment decisions are made by the general partner. Each individual investment will usually not exceed 10% of the fund’s total capital. General partners are typically compensated with a management fee of 2% to 4% and a performance fee, based on the profits generated by the fund.

Private equity funds are usually open only to insititutions and wealthy individuals. Investors have to commit to minimum investments of several hundred thousand dollars.

Once money is released to the fund, it is locked up for terms of several years.

Distribution of profits back to investors is made when assets are sold; limited partners usually have no right to demand that assets be sold off. Private equity is therefore most suitable for investors that can afford to have money tied up for several years. Within private equity, the riskiest investments are venture capital funds, which invest in early stage, startup companies. Mezzanine capital funds are less risky, investing their money in established companies that are still privately held.

Sources: Wikipedia, Medical Times

‘‘With 2000 beds, we will be able to get big reductions on prices, which will improve the hospitals’ balance sheets.”

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