Navigating Healthcare: Financing Private Hospitals in South Africa

Cresco has been actively engaged in the private healthcare market for eight years. During that time, we have completed over 30 feasibility studies, ranging from large 250-bed acute hospitals to oncology wards and other specialist healthcare services. This is notably Cresco’s most successful sector for financing, with 1 in 3 feasibility studies  resulting in financial close, compared to mining and energy sectors, which, historically, have had much lower ratios of feasibility study to financial close.

Set out below some example projects and relevant stages of development.

The typical project development approach has evolved to increase efficiency during the project development phase. This is because previous projects sometimes resulted in the reworking of major designs to achieve project viability. Early stage financial analysis/project viability on “approved hospital licenses” is now done before the detailed design work, to consider possible technical limitations in relation to building capex and phasing.

This approach serves to assist the technical, professional team in “sizing” the facility based on possible financial restrictions. The professional team is then provided a “maximum capex” brief which assists all parties in ensuring that key inputs achieve a timely, viable solution.

It is critical to note that development within the healthcare industry is however accompanied by a unique set of risk considerations. A very different approach to risk allocation and mitigation is considered relative to other typical long-term infrastructure projects:

 

Cresco’s experience of optimising the funding structure with specific focus on the operating company and the property company (generally with different shareholders) is critical to achieving financial close.

The typical commercial property finance approach does not work on greenfield hospital financings, and care needs to be taken when assessing optimistic occupancy projections that result in high returns. Moreover, Cresco, as the project finance advisor, regards saving equity from restructuring as important for long-term progress. Andy Tant, an executive director at Cresco, notes that “limiting post-construction equity support based on rental and debt sculpting creates complexity in the financial analysis but an opportunity to improve equity returns”.

Speaking to Cresco’s industry experience, Andy adds “although the market risk is higher than a typical energy project, this is countered by significantly better returns with high teens for single assets and early twenties of portfolios of over 1000-bed hospitals. These are combined and efficiency of costs and negotiation of medical aids is achieved.”

As a specialist financial advisory firm, we are proud to consult on these large-scale healthcare projects. Through this involvement on the continent, we are able to secure success and Enable Growth in Africa. Contact us today for a holistic, hands-on approach to financial advisory and project management: https://www.crescogroup.africa/contact-us/.

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