Blackstone (BX.N), Bain Capital, KKR & Co (KKR.N) and Dubai's Abraaj Capital have been shortlisted for the second phase of an auction of a fifth of private Indonesian healthcare operator Siloam in a deal that could fetch as much as $300 million, sources said.
Seller PT Lippo Karawaci (LPKR.JK) is seeking a valuation of more than 20 times Siloam's forward core earnings for the stake, they said, declining to be named as the discussions were private. Siloam is the country's biggest private hospital firm.
Global buyout firms are keen on Indonesia's consumer and healthcare sectors despite steep valuations, as they are betting on the country's fast-growing economy.
Indonesia has one of the world's lowest healthcare spending-to-GDP ratios, but its rising middle class - which represents more than half of its population of 240 million - is expected to sharply increase its medical spending and drive growth in the sector over the coming years.
"The healthcare sector still continues to remain the darling of private equity. Even with rich valuations it is easy to find bidders for this sector," said Krishna Ramachandra, head of corporate finance and investment funds at law firm Duane Morris & Selvam LLP.
Total private equity-backed deals in Asia in the first half of 2012 fell 55 percent to $8.8 billion, but healthcare deal value doubled to $669 million, according to Thomson Reuters data.
The Riady family, which controls Lippo, has previously tested private equity appetite for several of its assets but some deals have faltered due to high asking prices.
In 2010, however, Lippo sold a controlling stake in retailer Matahari to CVC Capital for $790 million, in Indonesia's largest ever private equity deal.
"They (Riadys) want to unlock the value because it's hard to rate it individually outside Lippo Karawaci and the business is promising too," said Ernawan Rahmat Salimsyah, director at Indopremier Investment Management in Jakarta.
LARGE VALUATION DISPARITY?
One of the sources told Reuters that first-round bids were below expectations, but the sale process will continue to give the buyers an opportunity to bid higher. It wasn't clear how much the bidders had offered for the stake in the first round.
"Lippo may be back in the market next year if the valuation disparity is too big," said one of the sources.
Lippo plans to sell a minimum 20 percent of unit Siloam Hospitals for between $200 million and $300 million, but could increase the stake to 49 percent if the price is right. It hired Bank of America Merrill Lynch to run the auction, sources have told Reuters earlier.
Lippo Karawaci spokesman Danang Kemayan Jati declined to comment. BofA, Abraaj and KKR declined to comment while Blackstone and Bain were not immediately available to comment.
Siloam, which represents around 30 percent of Lippo Karawaci's asset value, operates nine hospitals and is currently building four new ones.
KKR and Blackstone, which would be making their first direct investment in Indonesia if they buy a Siloam stake, are among funds that are establishing Singapore offices and building teams to boost their Southeast Asia investments.
Dubai-based Abraaj Capital, which manages $7.5 billion in funds, also has identified Southeast Asia as one of its four key markets.
It recently sold its minority stake worth about $390 million in Malaysia's IHH Healthcare (IHHH.KL) (IHHH.SI) during the firm's July IPO which raised $2.1 billion in a dual listing in Singapore and Malaysia.
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