The Ramsay Health Care Ltd (ASX: RHC) share price went up today following the company’s announcement that it was making progress on the sale of its Asian business.
Ramsay Health Care share price
Asian sale progress
The private hospital business had previously announced a few months ago that, together with its joint venture partner called Sime Darby Bhd (KLSE: SIME), it has decided to “explore the sale” of its Asian-based joint venture business called Ramsay Sime Darby.
A sale process was commenced after that June announcement, which resulted in a “number of non-binding indicative offers”. A select number of parties are now in the second phase of the due diligence process, which is expected to conclude “towards the end of October.”
What would Ramsay do with the cash? The private healthcare business said that the funds received will be used to pay down drawn debt.
The business said it aims to lower its leverage ratio to below 2.5x – being net debt compared to EBITDA (EBITDA explained) – from the proceeds of the potential sale, as well as increased earnings.
Ramsay expects to announce the outcome of the sale of this business before its AGM. Getting this across the line could help the Ramsay share price.
Credit rating downgrade
It wasn’t all positive news released today. Ramsay also said that credit rating agency Fitch had downgraded the investment grade credit rating for Ramsay from BBB/Negative to BBB-/Stable.
What that means is that Fitch doesn’t think quite as highly of Ramsay’s creditworthiness, but it’s certainly not calling its debt “junk” either, though it’s not seen as creditworthy as an institution as the Australian federal government, as an example.
Ramsay doesn’t think this change will impact its ability to access funding and liquidity in the future. However, it did say that this will increase its $1.5 billion sustainability-linked loan with a 10 basis point (0.10%) rise for its interest costs.
Ramsay reconfirmed it expects its FY24 net interest expense to be in the range of $570 million to $600 million.
As of 30 June 2023, Ramsay’s leverage calculation was 3.2x, below the covenant threshold of 4x. Its interest coverage ratio was 7.35x, greater than the covenant of 3x – that means its earnings could easily cover the interest costs.
Final thoughts on the Ramsay share price
Ramsay is trading at close to the price it did at the worst point of the COVID-19 crash, which doesn’t make a lot of sense to me.
Debt can be a problem. I hope it’s not selling its Asian business just to pay down debt, which would cut off one of its growth avenues.
It’s not an amazing business, but I think the market has been too harsh on the ASX healthcare share.
