Australia to Sell Largest Health Insurer in IPO by Mid 2015

Mar 26, 2014 1:52 am ET

(Updates with analyst’s comment in third paragraph.)

March 26 (Bloomberg) -- Australia plans to sell the country’s largest health insurer, Medibank Private Ltd., through an initial public offering before June 2015 as the government seeks to rein in a budget deficit.

The government will appoint joint lead managers for the IPO, which is the best option to secure the highest price, Finance Minister Mathias Cormann said today. Nomura Holdings Inc. Sydney-based analyst Toby Langley values the insurer at about A$4 billion ($3.7 billion) based on peer-group analysis, he said today by phone.

The IPO “will potentially lead to a greater level of competition in the Australian private health insurance market,” Langley said. “We expect significant attention around expenses and efficiency where Medibank lags the broader private health insurance market despite its significant scale.”

Australia’s government faces a budget deficit forecast to balloon to A$47 billion in the year to June 30 and Treasurer Joe Hockey has pledged spending cuts in an economy weighed by an elevated currency and slowing mining investment. He is also encouraging state governments to sell assets to fund new infrastructure projects and buoy business investment that’s shown a tepid response to record-low interest rates.

“The independently prepared scoping study reaffirmed our long-held view that there is no compelling reason for the government to own Medibank Private,” Cormann said in a statement. “Medibank Private is a commercial business operating in a well-functioning, well-regulated competitive private health insurance market with 34 competing funds.”

Market Share

Australia provides its citizens with free or subsidized health care at clinics and hospitals through Medicare. It also encourages people through tax benefits to take out private health insurance. Around 47 percent of Australians are covered by private insurers for hospital treatment while 55 percent are covered for other services such as dental and optical, according to a statement in June from the government’s Private Health Insurance Administration Council.

Medibank Private’s operating profit before tax rose 14.2 percent in the 12 months ended June 30, 2013 to A$185 million, driven by a 9.4 percent gain in revenue, the insurer said Oct. 8. It had over 3.8 million members and a 29 percent market share, it said at the time.

NIB Holdings Ltd., the only private health insurer listed in Australia, covers 900,000 people and is valued by the market at A$1.25 billion. It reported a net income of A$39.6 million on premium revenue of A$735.4 million for the six months ended Dec. 31. NIB shares ended unchanged at A$2.84 in Sydney compared with a 0.8 percent increase for the benchmark S&P/ASX 200 index.