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tate-owned pharmaceutical company PT Kimia Farma is moving from drugmaker to healthcare provider by establishing hospitals in anticipation of growing demand for services when the health insurance system is fully implemented in 2014.

Kimia Farma signed an agreement on Tuesday with PT Prakarsa Transforma Indonesia on the establishment of a subsidiary called PT Kimia Farma Hospital, which will run the hospital business.

Kimia Farma holds a 60 percent stake in the subsidiary.

“The new subsidiary will establish our first hospital, which will have a special liver center facility. We hope to start construction in April or May and to finish by the end of next year,” Kimia Farma president director Syamsul Arifin said.

The hospital will have about 200 rooms in a 14-story building, which will be built on Kimia Farma’s 14,000-square-meter plot on Jalan Saharjo, South Jakarta.

Syamsul said that investment for the hospital was estimated to reach Rp 280 billion (US$30 million), which would be supported by bank loans (70 percent) and Kimia Farma’s and Prakarsa Transforma internal cash (30 percent). According to Syamsul, several banks have offered financing for the hospital’s construction.

After the construction of the first hospital is completed, the joint venture will gradually build at least five more hospitals in Bandung, West Java; Makassar, South Sulawesi; Medan, South Sumatra; Semarang, Central Java; and Surabaya, East Java.

“Kimia Farma used to be only a pharmaceutical company. Now, we are a healthcare company with business interests ranging from drugstores, clinics and hospitals. Entering the hospital business is in anticipation of growing demand for medications when the social health insurance plan is implemented,” Syamsul said.

The Social Security Providers (BPJS) Law has mandated the establishment of a new health insurance company that would handle the universal health insurance system by 2014. The new health insurance system is expected to push up demand for healthcare services.

“We will maintain our pharmaceutical industry. Our hospitals will absorb our products, meaning that we will secure our presence in the market,” Syamsul said.

Besides establishing its own hospital, Kimia Farma is also planning to acquire several state-owned hospitals so that the new business line will contribute more to the company.

“We already have a list of possible hospitals. The acquisition will likely start next year,” Syamsul said, declining to provide further details on the names or number of hospitals to be acquired.

Syamsul said that Kimia Farma’s hospital chain was expected to contribute around 10 percent to the company’s future revenues.

“We need time to enjoy the return from our investment. We are targeting to see contributions from the hospitals within five years,” he said.

Syamsul said that Kimia Farma reaped Rp 3.48 trillion in revenues and Rp 171 billion in net profits last year. The company is aiming to book Rp 4 trillion in revenues and Rp 220 billion in net profits this year.

“These figures will change in line with our planned rights issue and merger with PT Indofarma,” Syamsul said.

Kimia Farma recently obtained approval from the State-Owned Enterprises Ministry to offload up to 20 percent of its enlarged capital in a rights share offering. Meanwhile, the Coordinating Economic Minister Hatta Rajasa, as chairman of the privatization committee, required the company to merge with Indofarma before performing the rights issue.