Two transactions in Switzerland, raising cash

Mediclinic announced yesterday a transaction that has been known to the market for over three weeks, that they had reached an agreement to buy an existing facility in Switzerland, 98 percent of the operating business of Swissana Clinic in Meggen. For those of you who are familiar with the Swiss countryside (lucky you) Meggen is smack bang in the middle of the country, and looks as beautiful as a postcard. Or should I say jigsaw puzzle. Almost everyone there speaks Swiss German, of course if German was your first language you would be able to tell the difference. According to the Wikipedia page on the town, a notable resident was the late Mark Rich. The town itself is around 550 years old, if we continue the historic theme!


Switzerland has a state system of cantons, which were individual sovereign states until the year 1848 when the country established a federal state. So for naming purposes, Meggen still sits inside the canton of Lucerne, which has a population of around 386 thousand rich folks. To refresh your memory, Switzerland has the largest out of pocket healthcare per capita spend in the world. Which is one of the very good reasons why Mediclinic find themselves doing business here in this part of the world.


And the facility that Mediclinic are buying, what does the Swissana Clinic do? The website is all in German and my understanding of that language is limited to the basics, counting, greetings and few food stuffs and of course cursing words. A quick look through the doctors by their area of expertise is a clear indication that this is a servicing richer and older people. Orthopedics, Cosmetic Surgery, Dermatology and Laser Medicine, Aesthetic Dermatology and Dermatologic Surgery. A huge list of doctors for a hospital that is relatively small, 11 inpatient rooms with a capacity of 22 beds, 11 day surgery beds and 3 operating theatres as per the release. And the price? 11 million Swiss Francs, 133 million Rand. Not a lot.


A much bigger and more sizeable acquisition from the same group was Clinique La Colline, announced last week. This is in Geneva based hospital, far larger. In the SENS release from the 25th of last month, the hospital was described as having a significant market share in orthopaedic treatments performed in Geneva. Other treatments offered at La Colline include internal medicine, visceral surgery, neurology, ophthalmology, general surgery, urology, plastic surgery, and gynaecology. Again, expensive therapies for rich people. The price tag? 130 million Swiss Francs, or 1.574 billion Rand. Add the two together and you are somewhere over 1.7 billion Rand, which is roughly two and a half percent of the current market capitalisation of Mediclinic.

Remembering that Mediclinic announced that they would be issuing roughly five percent more shares, 41 million shares were available to elected parties in a book build earlier in June. They raised 3.177 billion Rand at a price of 77.5 Rand. Perhaps more to shore up their local balance sheet in the face of the weakening Rand. As per the last annual results:


"Interest-bearing borrowings increased from R26 362m at 31 March 2013 to R30 370m at 31 March 2014, mainly as a result of the change in the closing ZAR/CHF and ZAR/AED exchange rates. The closing ZAR/CHF exchange rate moved from R9.69 at 31 March 2013 to R11.96 at 31 March 2014 and the closing ZAR/AED exchange rate moved from R2.51 at 31 March 2013 to R2.88 at 31 March 2014. It is important to note that the foreign debt of the Group's Swiss and Middle Eastern operations, amounting to R24 528m, is matched with foreign assets in the same currencies. The foreign debt has no recourse to the Southern African operations' assets."


Most of the debt, even though here it is translated back to Rand terms for the purposes of reporting are backed by foreign assets. Which must be worth more. Hirslanden, the Mediclinic business in Switzerland is now 16 hospitals strong and growing. As you will well know, we have recently instituted a buy recommendation on Mediclinic, we welcome this news.