MEDICLINIC INTERNATIONAL LIMITED - Swiss refinancing, impact of Swiss interest rates, and UAE growth and refinancing

Swiss refinancing, impact of Swiss interest rates, and UAE growth and refinancing

Mediclinic International limited
(Incorporated in the Republic of South Africa)
Registration number 1983/010725/06
ISIN: ZAE000074142
JSE share code: MDC
NSX share code: MCI
(“Mediclinic” or “the Group”)

SWISS REFINANCING, IMPACT OF SWISS INTEREST RATES, AND UAE
GROWTH AND REFINANCING

1. Swiss refinancing package

   The Group is taking advantage of strong capital markets in
   Switzerland to refinance its existing debt facilities with a
   new CHF 1.885 bn package. The refinancing simplifies the
   existing structure, reduces financing costs going forward
   and diversifies the funding base and maturity dates.

   In 2012 the Group’s Swiss debt was refinanced with a package
   comprising c. CHF 2.1 bn property backed facilities raised
   in Switzerland and Luxembourg without recourse to the
   Group’s South African operations, made up as follows:
   -  CHF 1.5 bn first lien facility with a total amortising
      repayment profile of CHF 450 m until December 2017 and
      priced at Swiss Libor plus a margin of 2.0%;
   -  a revolving credit facility of CHF 50 m with a bullet
      maturity in December 2017 priced at Swiss Libor plus a
      margin of 2.0%;
   -  CHF 0.3 bn second lien facility with a bullet maturity in
      June 2018, priced at Swiss Libor plus a margin of 3.5%;
   -  CHF 0.25 bn third lien facility with a bullet maturity in
      June 2018, priced at Swiss Libor plus a margin of 2.0%;
   -  amended interest rate swaps on CHF 1.8 bn notional
      matching the profile of the first and second lien debt at
      an initial blended rate of 0.14%;
   -  the total blended cost of this package was expected to be
      c. 2.5% excluding upfront expenses of approximately CHF
      60 m which are amortised over the period of the funding;
      and
   -  the current total blended cost of this package is c.
      3.02% per annum as a result of negative Swiss Libor which
      is expanded on in paragraph 2.

  In 2014, the Group embarked on an elective early refinancing
  process, which has now been concluded through the following
  steps:
   -   the third lien was repaid in December 2014 at a discount
       to face value of CHF 17.9 m. This was funded by an
       increase in the first lien facility of CHF 76 m and the
       utilisation of Group cash resources and facilities;
   -   a bond program was launched in January 2015 and concluded
       during February 2015 - CHF 235 m was raised in a dual
       tranche bond issue comprising CHF 145 m of a six year
       unsecured bond at a coupon of 1.625% and CHF 90 m of a 10
       year unsecured bond at a coupon of 2.0%;
   -   a further increase of the first lien facility back to CHF
       1.5 bn, maturing on 31 July 2020 with an annual
       amortisation of CHF 50 m and priced at Swiss Libor plus a
       margin of 1.5%;
   -   a repayment of CHF 200 m on the second lien facility and
       thus a new second lien facility of CHF 100 m with a
       bullet maturity on 31 July 2020 and priced at Swiss Libor
       plus 2.85%;
   -   a revolving credit facility of CHF 50 m with a bullet
       maturity on 31 July 2020 and priced at Swiss Libor plus
       a margin of 1.5%;
   -   a repayment of the external funding taken over on the
       acquisition of Clinique La Colline of CHF 15.6 m;
   -   the existing swaps on a notional amount of CHF 1.62 bn
       are being kept in place. These swaps expire in December
       2017 and June 2018 in line with the maturities of the
       2012 first and second lien facilities;
   -   the total upfront costs of the refinancing are estimated
       at c. CHF 10.5 m which will be amortised over the period
       of the funding;
   -   the revised structure results in an annual reduction in
       interest charges of c. CHF 12.5 m per annum;
   -   the estimated total blended cost of the new package is c.
       2.39% per annum excluding upfront expenses at current
       Libor levels and
   -   the estimated total blended cost of the new package at a
       zero Libor rate is c. 1.73 % per annum excluding upfront
       costs.

2. Impacts of the current interest rate situation in
   Switzerland

   During the refinancing in October 2012, swaps were put in
   place to hedge the exposure on the first and second lien
   facilities.

   With the removal of the Swiss Franc/Euro peg and the
   introduction of negative interest rates in Switzerland, the
   interest rate hedges become ineffective once Libor is below
   zero as bank funding at Libor plus relevant margins is
   always subject to a zero rate Libor floor. The impact of
   this is a non-cash flow interest charge through the income
   statement on the ineffective interest rate swap position and
   is expected to amount to approximately CHF 25 m as at 31
   March 2015 before tax and CHF 20 m after tax. The total
   balance sheet derivative liability as at 31 March 2015 is
   estimated at between CHF 30 m and CHF 40 m with the prior
   year number being an asset of CHF 3 m.

   At the current Libor levels of -0.8% an additional cash
   interest cost of approximately 0.9% per annum is currently
   being incurred. The position will vary should rates increase
   or decrease.

3. New Dubai project

   An agreement has been reached for the acquisition of land in
   the fast growing southern side of Dubai and planning is
   underway for the construction of a 150 bed hospital which
   will significantly increase the Group’s bed capacity in
   Dubai.

4. Refinancing of the United Arab Emirates (“UAE”)business

   Term sheets have been concluded with the existing lending
   bank to refinance the existing debt as well as provide an
   additional facility to finance the proposed expansion. A
   revised total USD 139 m 5 year amortising facility will be
   put in place. Pricing on this facility has reduced from the
   current 285 bps to 200 bps.

5. Normalised earnings measure normalised non-IFRS financial
   measures

   The Group uses normalised revenue, normalised EBITDA,
   normalised headline earnings and normalised basic headline
   earnings per share as non-IFRS measures in evaluating
   performance and as a method to provide shareholders with
   clear and consistent reporting. These non-IFRS measures are
   defined as reportable EBITDA, headline earnings and basic
   headline earnings per share in terms of accounting
   standards, excluding one-off items, as detailed above.

   The Group will exclude the income statement effects of the
   discount of the repayment of the third lien (CHF 17.9 m
   before tax) and the interest charge on the ineffective swap
   position (estimated CHF 25 m before tax) in the calculation
   of the normalised position.

Stellenbosch
30 March 2015

Mediclinic Offices, Strand Road, Stellenbosch 7600, South
Africa
PO Box 456, Stellenbosch 7599, South Africa
Tel +27 (0)21 809 6500
Fax +27 (0)21 886 4037
Ethics Line: 0800 005 316
Website: www.mediclinic.com

JSE sponsor: RAND MERCHANT BANK (A division of FirstRand
Bank Limited)

NSX sponsor: Simonis Storm Securities (Pty) Ltd

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