UPDATE 3-Parkway up on $835 mln bid; eyes on India Fortis

* Parkway briefly trades above Khazanah offer of S$3.78/shr

* Analysts say Khazanah's bid attractive

* Bid may force Fortis to accelerate Parkway control plan

* Fortis has access to financing if it opts for counterbid

* Parkway shares highest since Nov '07; Fortis down

(Adds comment from Fortis, detail on shares, updates stock prices in paragraphs 7,8, 12, 13, 17, 20, and 22)

By Sanjeev Choudhary and Saeed Azhar

NEW DELHI/SINGAPORE, May 31 (Reuters) - Parkway Holdings shares jumped 25 percent after Malaysian sovereign fund Khazanah offered $835 million for control of Singapore's biggest private healthcare group, leaving India's Fortis Healthcare (FOHE.BO) to make the next move in a potential takeover battle.

Fortis, which bought into Parkway PARM.SI in March and owns about 25 percent of the firm. must now decide whether to sell its shares or make a counterbid for all of Parkway, which it had hoped to use as a springboard for global expansion.

Fortis' original intention had been eventually to take control of Parkway, sources familiar with the matter have said, and the firm had raised its stake from an earlier 23.9 percent. Indian billionaire Malvinder Singh, the chairman of Fortis, had recently moved to Singapore to become chairman of Parkway.

Khazanah's surprise offer last week to lift its stake to 51.5 percent may force Fortis' hand and make a takeover more expensive.

"Raising funds may not be a problem for Fortis, but it makes little sense to go in for such a huge fund-raising and stretch your balance sheet," said Sapna Jhawar, an analyst at brokerage Sharekhan in Mumbai.

"The alternative and better option for Fortis at this point of time is to buy out other minority shareholders so that they remain in contention and not shell out too much cash," she said.

However, under Singapore rules, Fortis would need to make an offer for the entire company if its holding crossed 30 percent. A disclosure statement on Monday showed that Fortis had bought 350,000 Parkway shares last week before the Khazanah offer, lifting its stake to 25.37 percent from 25.34 percent.

"Fortis is looking at the best potential situation and outcome for itself and I think in all the possibilities that we seem to have, Fortis will not walk out dented by this proposition," Fortis Managing Director Shivinder Singh said on a Monday conference call to discuss the firm's results. He declined to take questions on the Parkway situation, citing legal advice.

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For StarMine valuations data: r.reuters.com/mew37k

For StreetSight data on Khazanah: r.reuters.com/gyk66k

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ATTRACTIVE OFFER

Analysts said Khazanah's offer was attractively priced.

"We expect possible counter offers from Fortis and remain negative on the deal as this could result in aggressive bidding by both Khazanah and Fortis, driving Parkway's share price ahead of its underlying business fundamentals," wrote Yew Kiang Wong, an analyst with CLSA in Singapore, adding that investors should sell.

Indian newspaper Economic Times reported on Saturday that Fortis was considering launching a bid for Parkway and was discussing financing options with Singapore state investment firm GIC. [ID:nSGE64S00F] [ID:nBMB010715]

Parkway is the largest listed pan-Asian hospital operator by market value and geographic reach. Its flagship hospitals Gleneagles and Mount Elizabeth in Singapore attract rich and powerful patients from Asia, and it also operates hospitals in fast-growing India and China.

Hospital chains in the region are seeing a wave of buyout activity. On Monday, a private-equity bidding war broke out for Australian hospital operator Healthscope HSP.AX, as the company received two more takeover approaches, both valuing the target at A$1.84 billion ($1.56 billion). [ID:nSGE64U00N]

FUNDING FIREPOWER

Fortis has plenty of access to funding. Controlling shareholders Malvinder Singh and his brother Shivinder have a combined fortune estimated by Forbes magazine at $3 billion.

One person with direct knowledge of the matter said bankers had already contacted Fortis with offers to raise as much as would be needed.

Earlier this month, Fortis agreed to raise about $85 million by issuing 22.35 million shares on a preferential basis to a unit of GIC. The shares cannot be issued until the proposal receives shareholder approval at a June 9 meeting.

Parkway shares reached a two-and-a-half-year peak on their first day of trading since Khazanah's bid, which at S$3.78 per share values Parkway at S$4.27 billion ($3 billion). They closed at S$3.71.

If Parkway took a controlling stake but Fortis opted to remain a shareholder, it could prove unwieldy, CLSA's Yew noted.

"Should Khazanah succeed in gaining a controlling stake of 51.5 percent in Parkway, they will still end up with a 'sticky' major shareholder (Fortis) that could impede future growth strategies and policies," he wrote.

While Fortis shares closed 7.6 percent higher on Thursday after Khazanah's offer, they have fallen more than 4 percent since then, ending 2.7 percent lower on Monday.

Lynette Tan, an analyst at DMG & Partners Research in Singapore, said Khazanah's offer price is attractive for shareholders at 45 times her 2010 profit estimates.

Parkway shares, which more than doubled in the last year, are up 27 percent in 2010, outperforming the benchmark Straits Times Index .FTSTI which is down about 5 percent.

Khazanah's Integrated Healthcare unit named Singapore lenders DBS (DBSM.SI), Oversea-Chinese Banking Corp (OCBC.SI) and United Overseas Bank Ltd (UOBH.SI) as joint lead arrangers of acquisition financing for its offer. ($1=1.407 Singapore dollar) (Writing by Tony Munroe; Editing by Anshuman Daga and Jon Loades-Carter)