Discovery to buy quarter of Chinese medical aid
R900m set aside for deal
December 2, 2009
By SLINDILE KHANYILE
Discovery Holdings wants to enter the Chinese market to expand its international footprint and take advantage of the untapped private medical aid industry in the world's most populous country.
The financial services group - which owns Discovery Health - the largest medical aid company in South Africa - intended to buy 24.9 percent of Ping An Health Insurance for no more than R900 million, it announced yesterday.
Discovery will add its reimbursement products, such as medical savings account and vitality, which make up only 13 percent of the private health insurance market in China.
The conclusion of the transaction is subject to approval from the China Insurance Regulatory Commission and the SA Reserve Bank.
Adrian Gore, the chief executive of Discovery Group, said the main motivation for this deal was that private health insurance was growing in China and there was still a huge untapped market. China has about 1.2 billion citizens.
"Private market is growing quickly and this is a unique and scalable entry point," said Gore. The government is encouraging private health insurers and there is a strong push to wrap private health around social health insurance (SHI)."
In China, SHI covers about 312 million people mainly in rural areas. The government is targeting 100 percent coverage by next year, with an additional 240 million urban residents. Estimated SHI covers 40 percent to 50 percent of total medical costs and outpatient treatments are generally not covered.
At present, China Insurance Regulatory Commission estimates commercial health insurance covers approximately 10 percent of the society's total medical costs.
The cost of the transaction will be no more than 5 percent of Discovery's market capitalisation, which yesterday was at about R18.8 billion.
Gore said that this would be funded by the company itself and not through debt.
He said it would have no effect on earnings and would take some time to be profitable.
"We will target both individuals and multinationals working in China. They don't have expertise in managed care, health products such as medical savings account and vitality. There is an appetite for wellness in China, we have done research."
Ping An Health was established four years ago and is a subsidiary of Ping An Group. It provides a range of health and ancillary services and sales in the past three years increased by 400 percent.
Khaya Gobodo, the head of equities at Afena Capital, said entry into China was an incredible opportunity because the medical aid industry was small and about 90 percent of private health care costs were funded out of pocket.
The share price of Discovery dropped 0.19 percent on the JSE to R31.79.
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