Investors eye chances in high-end healthcare
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E-mail China Daily, June 19, 2012
As demand for high-quality healthcare rises in China, venture capital and private equity companies are taking advantage of ample investment opportunities in the nation's private and specialized hospitals.
"Investment in private and specialized hospitals offers real opportunities," said Xu Xiaolin, general manager of CCB International Wealth Management (Tianjin) Ltd.
Xu said the company had invested in a high-end children's hospital in southwestern China.
The company has two objectives - to provide basic medical treatment, and offer high-end services, the main source of making profits for the hospital
Cai Daqing, a director at Legend of Capital Co Ltd, said it had invested more than $14 million in 14 medical and healthcare-related companies over the past five years.
At least two of these companies are preparing to go public, Cai added.
Legend Capital's portfolio companies in the sector include a maternity hospital and Evercare Med Institution, a cosmetic surgery hospital.
"Though we realized that there are many difficulties in investing, getting listed and exiting, the prospect of investing in hospitals is bright and some exit channels for VC and PE firms have appeared."
Cai added that, as it was unable to invest in State-run hospitals, Legend Capital chose to focus on private, specialized and high-end hospitals.
There were 158 investment deals in the medical and healthcare sector last year, worth $4.14 billion, around the same amount as the total deals in the sector from 2006 to 2010, according to a report from the Zero2IPO research center.
The report said 28 medical and healthcare companies were listed last year, raising $5.33 billion, and 12 of them were backed with VC or PE investment.
Every Chinese citizen made an average of 4.63 visits to the nation's 959,000 medical institutions last year, according to the report.
The State Council passed a medical reform plan in 2009 that promised to spend 850 billion yuan ($123 billion) by last year to provide universal medical services to the country's 1.3 billion people.
"We treat private medical institutions equally (with public ones), and they can be included in the scope of basic medical insurance under certain conditions," said Li Jinghu, deputy director of the Institute of Social Security at the Ministry of Human Resources and Social Security.
Li said China had almost 17,000 private medical institutions by the end of last year, with community medical institutions growing at the fastest rate - 8.2 percent last year.
Yu Bo, a partner at Kunwu Jiuding Capital Co Ltd, a domestic equity-investment company, said policy guidance for private capital in the medical and healthcare sector remains opaque.
Kunwu Jiuding's 40 investment programs in the sector were all in areas with clear policy guidance.
"We pay attention to investing in high-end medical institutions because demand from people in the high-income bracket is very strong," said Yu.
Li Jialin, deputy general manager of Mayinglong Pharmaceutical Group Co, said its primary concern regarding investors in hospitals is their industry background and operating philosophy.
"Investment in hospitals is a long-term prospect and investors should be patient. If they are in a hurry to recoup costs, the brand of that hospital will be ruined," said Li.
"We welcome VC and PE firms that bring us not only funds but also resources," said Jiang Lin, managing director of Chengdu-based Angel Group (China) Holding Co, which owns Angel Women's and Children's Hospital, a high-end private specialized hospital.
Financial and management experience from VC and PE firms is very important and can guarantee that a company can develop on a sound footing and prevent it from being acquired or merged by larger companies, Jiang said.
Domestic PE firm CDHFund invested 100 million yuan in 2010 in Angel Women's and Children's Hospital, according to ChinaVenture Group, a research and consulting firm focusing on venture capital and private equity investment.
"The largest challenge we have is administrative access, in terms of receiving licenses in different regions," said Jiang.
Deepening reform
In April, the State Council issued a statement on deepening the medical system reform, which states that local governments are required to issue detailed regulations to encourage private capital into this industry, and to guide the restructuring of certain public hospitals.
A total of 300 county-level hospitals will take part in a pilot program that will see them undergo reforms in finance, management and human resources, according to guidelines published on the central government's website in June.
Yu Bo from Kunwu Jiuding Capital said it saw great investment potential in hospitals in counties and small cities, as brand loyalty in those areas is far less developed than in large cities.
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