A Healthy Prognosis

With the population of the Middle East and Africa projected to reach 3.4 billion by 2050, the need to expand the public services sector and healthcare, in particular, gives the role of banks and other lending institutions special significance

The healthcare sector is undergoing a fundamental transformation moving towards the so-called “Health 2.0”—the consumer-centric, outcomesdriven and prevention-focused future of healthcare following the shock from the COVID-19 pandemic. EY said that this tectonic shift is driving significant consolidation and convergence as providers and payers across the healthcare ecosystem look to improve quality, reduce costs, and improve population health.

Although coronavirus created numerous challenges for the global health care sector, it also created enormous opportunities for innovators and investors. The outbreak of the pandemic exposed hospitals and other healthcare facilities to unprecedented pressure to help COVID-19 patients but also protect their staff, prevent employee burnout and deal with a surge in cyberattacks.

The use of virtual health, which was already prevalent before the ongoing health crisis but only reserved for primary care and behavioral health, is expected to improve the overall care experience for patients by leveraging the latest cutting-edge technologies. “In 2020, investors poured $21.6 billion into digital health companies—more than double the investments made in the prior year and almost four times the amount invested in 2016,” said Mercom Capital Group.

Deloitte noted that before 2020, telemedicine was typically seen as a benefit that some employers made available to their workers, but it has since become the de facto means through which clinicians connect with rural populations, Medicare and Medicaid beneficiaries, and people who can’t travel to a medical facility.

There has also been a surge in dealmaking in the healthcare sector across the Middle East as companies position themselves for improved economic conditions post-pandemic era amid vaccine optimism.

Mubadala’s health unit acquired a controlling stake in Abu Dhabi-based United Eastern Medical Services (UEMedical) in June 2021 as part of the sovereign wealth fund’s broader strategy to increase its investments in life sciences and medical technology,

with healthcare viewed as a profitable sector. To alleviate the pressure on the healthcare sector financial institutions in the Middle East region including the National Bank of Fujairah (NBF) and Standard Chartered availed funds to manage the operations of hospitals as well as improve critical infrastructure.

After the passing of the initial shock of the pandemic, some healthcare services providers are taking the opportunity to review their policies and protocols, adopt new technologies to improve operational efficiencies and patient and staff care and define their overall sustainability strategies, said S&P Global.

Wakeup call

Making healthcare affordable and accessible for all citizens and residents as well as the entire globe is one of the key focus areas of regional countries. However, PwC said that risk evaluation for healthcare projects seems to be a major concern for most banks making forays in healthcare financing.

The exposure of some regional banks to scandal-ridden NMC Health, the UAE-based hospital operator that revealed around US$6.6 billion in hidden borrowings, maybe one reason why some regional banks do not have a specific portfolio focused on healthcare but instead on pharmaceuticals, biotech and clinical research sectors.

Banks in the Middle East region rose to the occasion when the pandemic hit providing the much-needed financing to construct, equip and operate hospitals and emergency healthcare centers for the provision of public health services such as COVID-19 screening.

With the population of the Middle East and Africa projected to reach 3.4 billion by 2050, likely more than the populations of China and India combined, the need to expand the public services sector and healthcare, in particular, gives the role of banks and other lending institutions special significance.

The entire financial services ecosystem including banks, asset managers, private equity firms and hedge funds has a key role in the ongoing provision of long-term financing of the healthcare sector if the world is to achieve the United Nation’s Sustainable Development Goal (SDG) 3— that is global access to health services by 2030. British lender Standard Chartered in March 2020 committed $1 billion to fund companies that are producing medical equipment and providing services that are vital to fight the coronavirus globally including in the Middle East region.

“While health care is a multi-trilliondollar industry, it is an exceptionally challenging space, particularly for investors that are accustomed to other sectors,” said Deloitte.

Private equity is also emerging as one of the most preferred form of funding in the healthcare sector. PwC said that

private equity funds invest in companies with a proven track record of profitability and sustainable growth. Most private equity funds are keen on investing in the healthcare sector given the high growth and recession-proof nature of the industry. Private equity investments bring in not only the capital but also the adequate strategic planning and management skillsets for growth.

The outbreak of the pandemic has been a catalyst for development in the healthcare sector globally, thanks to the banking sector that financed research and development (R&D) and the distribution of COVID-19 vaccines.

M&A/Financing

The booming global healthcare market and lucrative opportunities in the sector are attracting investments from sovereign wealth funds in the Middle East region. Arab wealth funds are entering the healthcare sector through various channels including capital investment and collaborative ventures with counterparts in areas including medical technology (MedTech), diagnostics, healthcare education and R&D.

Mubadala Health acquired a 60% stake in United Eastern Medical Services from Jadwa Investment and United Eastern Group in June 2021, a deal that expanded its healthcare network in the GCC region to include 10,000 caregivers offering more than 100 types of medical services across the UAE and Saudi

Arabia. The Abu Dhabi wealth fund also made an initial commitment to invest $1.1 billion in Britain’s life sciences sector over the next five years in March 2021 as part of the UAE-UK Sovereign Investment Partnership.

There is an increase in investor appetite for healthcare assets across the Middle East, thanks to the growing population and a shortage of public services. Last month, funds managed by UAE-based Shuaa Capital invested $34.8 million in Swiss pharma-tech supply chain company SkyCell’s Series C funding round.

However, Egypt’s competition watchdog blocked Cleopatra Hospitals

WITH THE INFRASTRUCTURE IN PLACE, AND DEMONSTRATED ADVANTAGES INCLUDING CONVENIENCE AND ACCESSIBILITY, HEALTHCARE PROVIDERS ARE LIKELY TO CONTINUE TO DEPLOY TELEMEDICINE AS PART OF A HYBRID DELIVERY MODEL

– PwC

Group, the country’s biggest private hospital operator’s plans to acquire Alameda Healthcare Group in May 2021.

Regional banks have also increased lending to the healthcare sector following the outbreak of the coronavirus. Abu Dhabi’s Royal Health Group secured $13.6 million (AED 50 million) from NBF to finance the operations of two emergency COVID19 hospitals, support mobile teams screening for the pandemic at various sites in the UAE and assist the national vaccination campaign.

Last October, Mediclinic Middle East received $25 million from Standard Chartered as part of the banking group’s broader $1 billion commitment to fight the coronavirus. The Dubai Health Authority said more than 350,000 health tourists were received in the Emirate in 2019, generating over $197.7 million (AED 726 million) in total healthcare revenue.

Emerging trends

According to PwC, technological innovation and broader societal changes are shifting the balance of power in healthcare from providers to patients, creating forces that industry stakeholders cannot ignore.

Coronavirus intensified these developments and governments, regulators, and healthcare providers in the Middle East are joining forces in key areas including regulation, publicprivate partnership (PPP), funding and technology innovation to accelerate the transformation of the healthcare sector.

Several healthcare providers in the region switched to telehealth and remote patient monitoring when regional introduced lockdowns curtailed face-to-face appointments. “With the infrastructure in place, and demonstrated advantages including convenience and accessibility, healthcare providers are likely to continue to deploy telemedicine as part of a hybrid delivery model,” said PwC.

Overall, funding for health technology organizations and startups has reached record levels and there are no signs that the pace will slow. Some of the Middle East’s popular telemedicine firms including Dubai-based Okadoc, Bahrain’s Doctori, Jordan’s Altibbi and Saudi Arabiabased Cura. KPMG said that the use of telemedicine can play an important role in reducing the risk of patient harm and mitigating some of the growing risks, associated with a steadily increasing workload backlog.

Deloitte said that in 2021, investors will likely be looking closely at technology companies that can combine virtual care with a retail experience—a hybrid model that might allow consumers to access primary care, behavioral health or specialty care through a combination of virtual health and in-person visits at a retail location.

IN 2020, INVESTORS POURED $21.6 BILLION INTO DIGITAL HEALTH COMPANIES— MORE THAN DOUBLE THE INVESTMENTS MADE IN THE PRIOR YEAR AND ALMOST FOUR TIMES THE AMOUNT INVESTED IN 2016

– Mercom Capital Group

WHILE HEALTHCARE IS A MULTI-TRILLIONDOLLAR INDUSTRY, IT IS AN EXCEPTIONALLY CHALLENGING SPACE, PARTICULARLY FOR INVESTORS THAT ARE ACCUSTOMED TO OTHER SECTORS

– Deloitte

ESG in healthcare

Debt financing from banks and financial institutions is the preferred route for raising capital for health care providers. As sustainability, which incorporates environmental, social and governance (ESG) concerns, is increasingly topping the agendas of most companies globally, the healthcare sector is not an exception.

Sustainability-linked financial instruments are one way these companies can raise funds while highlighting their green or social commitments and reinforcing their sustainability strategy to investors, lenders, and the public.

A study by S&P Global showed that since the beginning of this year, there has been a surge in sustainability-linked loans issued in the European health care sector, reaching $7.3 billion as of May 2021—with health care services companies being the most active.

Considering their innovative features and characteristics, which include a high degree of flexibility regarding the use of proceeds, sustainability-linked loans have broadened the universe of issuers who can obtain sustainable financing and healthcare.

Through the issuance of sustainabilitylinked instruments, health care service providers in the Middle East region can be influential in promoting ESG by focusing on and aligning their strategies with the UN Sustainable Development Goals including good health and wellbeing as well as advancing decent work and economic growth.