RAMSAY HEALTH CARE LIMITED
Fitch Ratings has assigned
The programmes are rated at the same level as Ramsay's Issuer Default Rating (IDR), as notes under the programmes will be issued by Ramsay and constitute senior, unsecured and unsubordinated obligations of the issuer. The rating is assigned to the programme and not to the notes issued under the programme. There is no assurance that notes issued under the programme will be assigned a rating, or that the rating assigned to a specific issue under the programme will be the same as that assigned to the programme.
All bonds will be guaranteed by entities within the funding group, and the issuer and the guarantors together must make up 85% of the consolidated adjusted EBITDA and adjusted total assets of Ramsay's funding group. The proceeds from issuances are expected to be used for general corporate purposes, including refinancing and diversification of the company's funding sources.
Key Rating Drivers
Negative Outlook on IDR: The Outlook on Ramsay's IDR is Negative, reflecting ongoing delays in the company returning EBITDAR leverage to below 3.3x, the level above which we may take negative rating action. We expect Ramsay's performance to improve as operations normalise, such that it is on track to delever to 3.3x by
Cost Pressures Weigh on Deleveraging:
We expect high labour costs to continue to pressure margins over the medium term, as Ramsay attempts to fill vacant positions and train its workforce. Renegotiated contracts with private health insurers should offset some of the higher costs and, combined with the full-year benefit of normalised operations, somewhat improve margins from FY24. We continue to expect leverage to improve to around 3.3x by FY24, but unresolved labour challenges raise risks around this improvement.
Organic Deleveraging Prioritised: Ramsay is planning to return leverage to a level commensurate with its rating organically. It has attempted to accelerate deleveraging, for instance, through the exploration of a sale and leaseback, but this failed to meet its target benefits. Further, the offer for its Asian joint venture, whose proceeds would have been used to help deleveraging, was also ultimately unsuccessful. Ramsay remains committed to maintaining a capital structure commensurate with its investment-grade rating and still has some options to speed up deleveraging, including capex adjustments.
Pandemic Challenges Subsiding; Favourable Demographics: Ramp-up challenges continue to abate and activity levels are returning to more normal levels, although challenges remain in certain segments. We believe demand for private-hospital services in
Government Policies Support Long-Term Demand: The Australian and
We believe these policies will be complemented by higher private-health take up or self funding, as patients seek to expedite treatments. Private hospitals are likely to continue to receive a disproportionate share of healthcare growth in the two countries and we expect Ramsay will remain a leading provider to the private and public sectors, supporting long-term demand for its facilities.
High-Quality Revenue: Around 95% of Ramsay's Australian and
Derivation Summary
Ramsay compares well with Australian 'BBB' rated peer,
The impact of labour challenges on margins is reflected in the Negative Outlook on both issuers' IDRs. Downer has a more conservative financial profile than Ramsay, but its margins are much lower and ongoing labour and recent weather challenges have delayed the company's ability to return margins to above 5%. The ongoing labour challenges for Ramsay, on the other hand, continue to delay its organic deleveraging following its Elysium acquisition.
Ramsay's rating can also be compared with that of US healthcare provider,
This remains an issue for US healthcare providers although the Affordable Care Act has encouraged health insurance uptake, underscoring the multi-notch difference between the issuers' ratings.
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
FY23 revenue to increase by around 15% as conditions normalise in
EBITDA margin to improve from around 13% in FY23 to around 15% in FY25, as Ramsay absorbs the pandemic impact, including higher equipment costs, and some measures are progressively phased out;
capex at between 7% and 10% of revenue;
dividend payout ratio to be at the lower end of the guided range of 60%-70% of net profit after tax for the consolidated group.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
Fitch may revise the Outlook to Stable if Ramsay is able to improve total adjusted debt/operating EBITDAR to below 3.3x for a sustained period. This could be through the company taking mitigating actions or the post-pandemic recovery or labour challenges dissipating faster than we anticipate.
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
total adjusted debt/operating EBITDAR to remain above 3.3x for a sustained period;
loss of commercial agreements with one or more major private healthcare insurers in
private health insurance participation in
stronger legal, operational and strategic linkages between Ramsay funding group and
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Strong Liquidity Profile: The Ramsay funding group had available undrawn debt capacity and cash of AUD563 million at FYE22. The group relies on bank funding, limiting its proven funding sources within credit markets. However, the AUD1.5 billion share issue at the beginning of the pandemic demonstrates access to equity markets, and the company used its available facilities to complete the Elysium acquisition in early 2022.
Issuer Profile
Ramsay is a global hospital group operating in about 500 locations around
Summary of Financial Adjustments
Rated on Australian,
We also note that the group includes the pharmacy franchise, which was previously excluded.
Asset Intensity: We assess Ramsay's financial profile using lease-adjusted metrics to reflect the industry's asset-intensive nature and the impact on Ramsay's decision to lease its entire
Equity Credit on Hybrids: Fitch has applied a 100% equity credit to Ramsay's convertible adjustable-rate equity securities preference shares, as they are senior only to equity, the coupon is deferrable and non-cumulative, there are no material covenants or events of default, and they form a permanent part of Ramsay's capital structure. Fitch's assessment of permanence is based on discussions with management and our belief that Ramsay does not have any incentive to redeem the instruments, as there are no future coupon step-ups.
Date of Relevant Committee
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
(C) 2023 Electronic News Publishing, source
