Moody's Investors Service has assigned a Ba1 corporate family rating (CFR) and Ba1-PD probability of default rating to NMC Health, the largest healthcare provider in the UAE (UAE, Aa2 stable). The outlook on the ratings is stable.

This is the first time that Moody's has assigned ratings to NMC.

Ratings rationale

NMC's Ba1 CFR and Ba1-PD ratings with a stable outlook reflect its business profile as the largest healthcare provider in the United Arab Emirates (UAE, Aa2 stable), which is an affluent healthcare market with an attractive demographic profile. NMC also operates one of the largest wholesale distribution businesses in the UAE, including fast-moving consumer goods, pharmaceuticals and scientific equipment.

The ratings also take into account NMC's favourable regulatory environment to date, in particular, the company's good relationships with various regulatory bodies that adopt a constructive approach to dealing with any challenges that may arise.

To date, NMC has not faced any closure or censure of its facilities. The company continues to strive to meet self-imposed standards that are higher when compared to what is expected of it by various regulators.

This approach supports in turn its resilient business model, loyal customer base, strong brand recognition and market leading position. NMC also continues to attract highly skilled doctors to its facilities from the Middle East and further afield through enticing remuneration packages and working conditions, and because of the good quality of life offered to expatriate workers in the UAE.

At the same time, the ratings consider the company's small scale of operations as a private healthcare provider with revenues for the financial year ended 31 December 2017 of $1.6 billion. As of the same date, NMC owned 75 and managed 65 facilities, with around six million patients seen in 2017.

In terms of concentration, six facilities represent 68.3 per cent of EBITDA. Consequently, any unforeseen challenges affecting the ability of these operations to function according to plan could have a material adverse impact on NMC's EBITDA and deleveraging trajectory.

NMC has a strong track record of integrating its acquisitions.

Specifically, in incorporating new operations into its own operations to add scale-driven synergies, NMC aims to and has shown that it will only acquire operations that are not broken, but are also not fully optimised, with the potential to breakeven soon after the acquisitions.

Furthermore, the ratings recognize NMC's strong liquidity profile and strengthening credit metrics, with debt/EBITDA likely to trend towards 3x over the next 18 months. The company has a public commitment to keep net debt/EBITDA below 3.5x at all times.

The ratings are further supported by the quality and stability of NMC's operations, which offer world class care, notably for in vitro fertilisation and long-term care facilities through its Provita offering. The diversification associated with NMC's business profile is enhanced through its distribution business, where it holds sole rights for a number of noteworthy brands, including Nestle, Nivea and Pear. NMC also sells 3M, Siemens and Samsung medical products and is the sole distributer for Pfizer pharmaceutical products.

Liquidity

NMC's liquidity position is sufficient to meet its operational and capital expenditure needs of $463.1 million as forecast by Moody's. This situation is supported by surplus cash balances, which Moody's estimates will, over the next 18 months, exceed $100 million and could measure close to $200 million, taking into account operating cash requirements of around $62 million.

NMC's liquidity profile is further strengthened by a $400 million revolving liquidity facility, which will remain largely undrawn over the next 18 months.

The strength of NMC's liquidity remains reliant on the ability of the company to address maturing debt as it becomes due, notably its $1 billion bridge loan facility which matures in the next 18 months.

Rationale for the stable outlook

The stable ratings outlook assumes that NMC will address the $1 billion of bridge loan debt in advance of 12 months to maturity and that the company will deleverage towards 3x debt/EBITDA over the next 18 months.

The stable ratings outlook further presumes that NMC will maintain the smooth functioning of its operations, in an environment with no material challenges to its key EBITDA generating facilities.

What could change the rating up/down

Given the scale of its operations, level of geographic diversification and high leverage, upward pressure on NMC's CFR is limited over the next 18 months. And, its scale would need to exceed $5 billion in revenues, with debt/EBITDA trending below 3x to be considered for an upgrade to Baa3.

NMC's ratings would be downgraded if the company fails to deleverage towards debt/EBITDA of 3x over the next 18 months, and its liquidity profile or key operating facilities become pressured due to unforeseen challenges.

Headquartered in Abu Dhabi, NMC Health plc is the legal entity listed on the LSE premium market (FTSE 100 company) with a current market capitilisation of close to $10 billion. The Top 10 shareholders own an approximately 75.2 per cent stake in NMC and include Dr B R Shetty (the founder of NMC), investment vehicles of the Bin Butti family, as well other notable institutional investors.

For the financial year ended December 31, 2017, NMC reported $1.6 billion in revenues and a Moody's adjusted EBITDA of $408 million. – TradeArabia News Service