Bloomberg News

Mitsubishi Venture May Start Second Health-Care Fund on Demand

October 25, 2011

Oct. 26 (Bloomberg) -- Healthcare Management Partners Inc., a venture between Mitsubishi Corp. and Development Bank of Japan Inc., may plan a second fund on expectations medical services demand will rise in the world’s most rapidly aging nation.

The joint venture may start the new health-care fund once the investing period for its first fund is over in March 2012, said Hiroshi Murayama, the chief executive officer of the Tokyo- based firm. It may invest in properties, mezzanine and distressed debt of hospitals in Japan, he said, declining to elaborate because details are yet to be determined.

The venture aims to profit in a market where spending on medical and nursing care is estimated to increase about 70 percent by 2025, according to government data. The fund provides financing for hospitals that are struggling to raise capital to rebuild facilities and replace old equipment, Murayama said.

“We would like to start thinking about our new fund next year as there is ample demand,” said Murayama in an interview in Tokyo yesterday. “We are targeting hospitals that are in need for financing. This is quite a niche market.”

The company’s first fund, Trinity Healthcare Fund, was set up in 2007 to revitalize hospitals in Japan through real estate securitization, buying distressed debt and improving balance sheets, according to the venture. Mitsubishi is Japan’s biggest trading company and Development Bank is a government-run lender.

Trinity Fund

The fund, with 20 billion yen ($263 million) in capital and 60 percent of leverage, has turned unprofitable hospitals around by cutting labor and equipment costs and adjusting the usage of hospital beds more efficiently by reducing hospital stays, Murayama said.

Trinity fund has so far helped improve the balance sheet of more than half a dozen of hospitals, Murayama said. The 10-year fund, which targets an internal rate of return of more than 10 percent, will end in 2017, he said.

About 61 percent of hospitals in Japan posted losses in the year ended March 2010, based on to a survey conducted by the Japan Hospital Federation.

“Some hospitals haven’t been well run in Japan,” said Murayama. “Without them improving their balance sheet and reducing their assets, banks are reluctant to provide long-term financing.”

Japan’s population is aging as people born in the five years after the end of the World War II, the so-called first- generation baby boomers, reach retirement age. About 23 percent of Japanese were over 64 last year, up from 20 percent in 2005, according to the national census.

Aging Population

Medical expenses for households are expected to increase for an eighth straight year to 36.6 trillion yen in the current fiscal year through March 2012 and may increase to as much as 62 trillion yen by the year ending March 2026, according to estimates by the country’s health ministry and the Cabinet Office. The nursing-care market is expected to reach 9 trillion yen in the current fiscal year and may more than double to 21 trillion yen in 14 years, according to the health ministry.

Hospital properties are attractive investments because locations are less important compared with other businesses, so long as they generate cash flow and are capable of paying rents, Murayama said. An increase in mergers and acquisitions in Japan’s medical industry is also posing opportunity for investments as winners and losers become clearer, he said.

Murayama is also eyeing preference by patients for hospitals that can provide higher-quality care, such as those with individual rooms that may lead to an increase in demand for rebuilding medical institutions. Forty-four percent of Japan’s hospitals are not quake proof, government data shows.

--With assistance from Kanoko Matsuyama in Tokyo. Editors: Tomoko Yamazaki, Linus Chua

To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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