China Resources and Phoenix Healthcare Merge in HK$3.72 Billion Deal to Form One of Asia's Largest Medical Service Groups

On August 30, 2016, Phoenix Healthcare Group Limited announced that, following the signing of a term sheet on April 8 of this year, it had entered into a formal Sale and Purchase Agreement with China Resources Medical Holdings Company Limited for the acquisition of the assets and interests of Guangxiong Limited, a wholly-owned subsidiary of China Resources Medical, and/or the rights to manage and operate its business.

The agreement stipulates that Phoenix Healthcare intends to pay the consideration for this acquisition by issuing shares of the listed company to China Resources Medical (or its wholly-owned subsidiary nominated by China Resources Medical) at a price of HK$8.04 per share, with a total issuance of approximately 463 million shares, resulting in a transaction value of approximately HK$3.72 billion. Upon completion of the acquisition, China Resources Medical will become the single largest shareholder of Phoenix Healthcare, holding no less than 35.7% of the enlarged issued share capital of the listed company following the share issuance, and the company will be renamed China Resources Phoenix Healthcare Holdings Limited (“CR Phoenix”).

According to reporters from VCBeat (WeChat ID: vcbeat), Phoenix Healthcare was listed on the Main Board of the Hong Kong Stock Exchange in 2013. As the first Chinese hospital group to be listed on the international capital market, it has remained a favored stock in the Hong Kong market since its IPO. The target of this transfer, Guangxiong, is a wholly-owned subsidiary of China Resources Healthcare (CR Healthcare) established in 2011. It specializes in hospital investment and construction, operational management, and related extended services. Under its umbrella, it operates or manages four non-profit hospital groups (including three affiliated elderly care institutions) and one for-profit outpatient clinic (collectively referred to as the “Target Hospitals”). The four non-profit hospital groups are CR Wugang Hospital Group (“Wugang Hospital”), Huaibei Miners’ General Hospital Group (“Huaikuang Hospital”), Xuzhou Mining Hospital (“Xukuang Hospital”), and Guangdong Sanjiu Brain Hospital (“Brain Hospital”). The for-profit outpatient clinic is Sanjiu Medical Outpatient Clinic (Shenzhen) Co., Ltd. The Target Hospitals comprise 44 medical institutions, all of which are designated insurance providers. As of December 31, 2015, the total number of actual open beds was 5,809. In 2015, the annual outpatient volume reached 2.39 million visits, and the inpatient volume reached 154,000 admissions. In 2015, the Target Hospitals generated a total operating revenue of RMB 2.43 billion and a net profit of RMB 182 million.

As of the end of 2015, Phoenix Healthcare managed and invested in 60 medical institutions in the Beijing-Tianjin-Hebei region, including three tertiary hospitals, six secondary hospitals, nine primary hospitals, and 42 community healthcare facilities, with a total of approximately 5,780 open beds. Based on the current number of hospitals and beds, China Resources Phoenix will have approximately 11,780 actually open beds, making it one of the largest healthcare service groups in Asia by operational bed count. Following the integration of China Resources into Phoenix, the flagship leader in healthcare services has been firmly established. Previously, the four major healthcare groups—China Resources, CITIC, Fosun, and Peking University—each had approximately 6,000 beds.

However, public data show that in 2015, China Resources Healthcare’s 6,000 hospital beds generated total medical revenue of RMB 2.41 billion, averaging RMB 400,000 per bed annually—a level comparable only to the national average for more than 20,000 medical institutions across China in 2014. Therefore, the development of China Resources Phoenix still faces challenges following its establishment.

Although Phoenix Healthcare and China Resources Healthcare each operate a large number of medical institutions, the geographic distribution of their facilities differs significantly. Phoenix Healthcare has previously stated that the acquisition represents a valuable opportunity for the company to expand its hospital network substantially and rapidly.It is evident from Phoenix Healthcare’s strategic plans that the company has a strong interest in public hospital reform.Through this collaboration, Phoenix Healthcare will rapidly expand its hospital network, primarily covering the Beijing-Tianjin-Hebei region, to multiple key areas across China. The target hospitals will become regional medical centers for China Resources Phoenix (CR Phoenix), laying the foundation for a cross-regional healthcare platform. These initiatives not only align with the long-term strategic development goals of both Phoenix Healthcare and China Resources Healthcare but also effectively enhance the brand recognition and influence of both parties.

China Resources Group has long been optimistic about the prospects of the big health industry. In recent years, it has committed to developing China Resources Healthcare. This collaboration with Phoenix Medical represents a complementary alliance of strengths. By leveraging China Resources Healthcare’s substantial resources and diversified business structure, along with Phoenix Medical’s advanced experience in public hospital reform and hospital group management, the two parties will gradually build CR Phoenix into a key platform for China Resources’ big health sector, striving to jointly create a renowned healthcare enterprise group with international influence.

In the future, China Resources Phoenix will prioritize the development of a Regional Integrated Delivery System (RIDS). By fostering the coordinated growth of three major service networks—primary care, critical care, and rehabilitation/nursing care—the company aims to achieve the healthcare reform goal of a tiered diagnosis and treatment system. It will explore industrial models that optimize the allocation of medical resources and, on this basis, further expand into related sectors of the industry chain, such as insurance and elderly care. By pioneering integrated models of medical insurance with healthcare services and medical care with eldercare, China Resources Phoenix seeks to become a vital component of domestic health supply, thereby fulfilling its corporate social responsibility through industrial development.

Although the establishment of CR Phoenix has achieved a nationwide strategic layout and, to some extent, allowed it to benefit from favorable national policies, CR Phoenix still faces challenges. Phoenix Healthcare, as private capital, prioritizes the integration of profitability and efficiency, whereas China Resources Healthcare, as a state-owned enterprise, places greater emphasis on the overall scale of its operations. Consequently, the integration of internal management mechanisms has become the primary challenge for CR Phoenix since its inception.