Meet the new boss: Vitals Global’s quick profit in sale to American equity firm

Three Maltese hospitals packaged into a neat healthcare deal: a stable 30-year concession, medical Partners Healthcare and Queen Mary University London for the glitz, and a contract that allowed a fast private equity flip.

For the owners of Vitals, who flew in to repackage the hospitals deal into an attractive proposition to another equity firm, Cerberus Capital Management, this is what privatisation was all about. Healthcare, an industry resilient to economic turbulence, that can count on ageing populations, the rise of chronic disease, and the constant demand for top quality healthcare by high net worth individuals.

The only thing missing is the price tag on the Vitals deal. How much profit was made on the back of the Maltese state assets passed on to this lucky concessionaire?

Vitals Global Healthcare originated from the Singaporean private equity firm of Mark Pawley, Oxley Capital, having won a PPP tender in Malta against unimpressive competition.

The deal was to have Vitals Global Healthcare, with no proven experience in the field of healthcare, to take over the Gozo, St Luke’s and Karin Grech hospitals. Konrad Mizzi was then health minister, and by April 2016, would have been revealed to have opened an offshore Panama company in the Panama Papers of that year. He would much later lose his portfolio to his junior minister Chris Fearne.

To bolster the attractiveness of the Gozitan hospital, Barts of London was offered a campus there so that it could charge handsome fees for a medical course in Malta, and give the Gozo hospital a name that Vitals could leverage – ostensibly for medical tourism business.

READ MORE Barts will eat into Mater Dei resources, doctors and students warn PM

The €1.6 billion deal for the 30-year concession period also roped in Partners Healthcare International in the USA, for the medical expertise.

What was particular to the Vitals deal was that the project was always intended for a private equity flip: getting a good deal from the Maltese government and get the project ready to be resold to the highest bidder, in this case Steward Health Care of the USA. No wonder that Vitals’s CEO Armin Ernst was actually still chief administrative officer at Steward, going by his LinkedIn profile.

VGH director Ram Tumuluri (left) with health minister Chris Fearne

From Gozo to the BVI

Vitals was ultimately owned by a British Virgin Islands company called Bluestone Special Situations 4, one of several of Oxley Capital subsidiaries conveniently set up in a tax haven, used for its real estate and specialist funds for high net worth individuals.

The man fronting Vitals in Malta was Ram Tumuluri, but the person least reported about is the Pakistani businessman Shaukat Ali Chaudry. In 2016, the two men were seeking €50 million in equity for a renewable energy project from a Norwegian firm, for a 24% stake. They told the firm’s CEO that Vitals was being valued at €2.8 billion.

Shaukat Ali Chaudry, a Sliema resident, is connected to Vitals through its main shareholder, the BVI company Bluestone Special Situations 4 (BSS4).

BSS4’s subsidiary is Bluestone Investments Malta, with Mark Pawley as a director, and that company owns a subsidiary called Crossrange Holdings. This company is also partly owned (30%) by Shaukat Ali Chaudry’s own Malta company, Pivot Holdings. Crossrange then owns the companies Gozo International Medicare and Gozo Global Healthcare. These companies may have never actually traded, going by the dearth of records at the MFSA.

Shaukat Ali also owns Medical Health Management & Consulting, which he opened in November 2014. It recently attempted to negotiate the sale of St James Capua hospital, but the deal fell through in 2015. 

Inking a deal for the healthcare PPP at St Luke’s and Gozo General Hospital, where Barts school of medicine will host a medicine degree that will also use state health resources

Easy way in

Pawley had admitted that the medical venture in Malta was his company’s first but pledged the PPP as a “solid and sustainable model for healthcare improvement and that it will be an interesting model for other governments as well”.

The tender for running the hospitals was first publicly advertised in March 2015. Heavily redacted versions of the contracts signed with the company were only presented in Parliament months later.

The secrecy with which the government jealously guarded the agreement with Vitals Global Healthcare inevitably raised serious questions about the funding of the PPP, as well as the degree to which Vitals were given a ‘done deal’.

For example, Queen Mary University of London signed an agreement with the government to open a Gozo hospital campus for Barts in March 2015, when the request for proposals to upgrade and take over management of the three hospitals had not yet been issued
Vitals were formally created in May 2015, but Bluestone had already planted its Malta flag back in December 2014. When the bids came in May, Vitals fended off ‘competition’ from small outfits BSP Investments, owned by two Maltese businessmen; and Indian hospital group Image, of Hyderabad.

An alleged “due diligence” report whose text Malta Independent columnist Daphne Caruana Galizia reproduced in her blog, suggests that both Tumuluri and Shaukat Ali would have approached the Maltese government in late 2013 – ostensibly floating the business opportunity to take over the running of the hospitals.

The new Gozo Hospital as planned by Vitals

Privatisation rarely happens in some kind of policy vacuum: the first to tap the government's people on the back are the very people who have an interest in taking over a State asset. Crossrange Holdings set up its companies with Pawley in December 2014, six months before Vitals was set up. The request for proposals to take over the running of the three hospitals was published by Projects Malta, which fell under Konrad Mizzi’s control, in April 2015, and the tender officially awarded to Vitals the following September.

The new boss

So who are Steward Health Care?

Steward Health Care today are billed as the largest private hospital operator in the United States.

The company was established after the sale of Caritas Christi Health Care – a non-profit Catholic health service in Boston employing 12,000 – to the private equity firm Cerberus Capital Management in 2010 for $838 million. Cardinal Sean P. O’Malley, whose approval was needed for the acquisition, said the sale would preserve the cash-strapped hospital network and guarantee its employees’ retirement benefits, after the pension fund suffered significant losses in the decline of the stock market.

Cerberus turned the Caritas network of hospitals into a for-profit company that was renamed Steward Health Care, and now employs 37,000 employees across 10 states operating 5,000 beds.

Steward Health Care is still owned by Cerberus Capital Management, which has some $30 billion in assets under its wing. In 2017, Steward merged with Iasis Healthcare in $2 billion deal to take control of a total 36 hospitals across 10 states, with revenues of nearly $8 billion.

Both Oxley and Cerberus walk along the same lines of business. In Ireland, Cerberus acquired millions in distressed assets from the state asset company Nama; Oxley was financing a €111 million construction investment on land owned by Nama. This is where private equity firms come in, with the big refit and the pimping up of state assets that political parties have no time to take responsibility for.

For Pawley’s Oxley Capital, the sale of Vitals has surely ensured a sizeable return after 21 months of stripping and refitting the PPP package granted to them by the Maltese government: three hospitals geared towards specialist services and medical tourism, with the security of a 30-year-deal.

A clean job and a done deal for the next boss to move in.