* London-listed NMC had been frontrunner
* Seven-year contract not attractive -sources
* Wider privatisation plans delayed -sources
* Investors blame red tape, lack of organisation
DUBAI, April 4 (Reuters) - London-listed NMC Health's bid to take over the running of a top Saudi hospital has stalled over contractual terms, reflecting wider challenges to the government's drive to open the healthcare sector to foreign investors.
The Ministry of Health has been in talks with companies interested in managing the Saad Specialist Hospital in Khobar, which is one of the leading cancer treatment facilities in the Gulf but has been closed since late last year - a casualty of a multi-billion dollar debt row gripping the family that owns it.
United Arab Emirates-based healthcare provider NMC had been seen as a frontrunner to win a seven-year contract to run the 750-bed hospital, according to three sources familiar with the matter. But bidding has been held up by the government's unwillingness to extend the contract beyond seven years and investor concern about the debt dispute involving the hospital's owner, the sources said.
The ministry's handling of the hospital's future is separate from a privatisation drive the kingdom is embarking on, but the process is being closely watched as an indication of how the kingdom engages with foreign investors.
"Getting someone like NMC in would send a good signal to the private sector that the Ministry of Health is getting it right," said one private sector healthcare professional. "But the economics of the deal don't look likely to make that happen."
The Ministry of Health did not respond to a request for comment.
A contract limited to seven years would make it hard to turn a profit after the initial time and investment required to get the hospital operational again, the sources said, adding that the facility required some maintenance.
NMC's next move is unclear, but the sources said that unless the contract terms change, NMC and other foreign private sector investors are reluctant to become involved.
"We don't comment on market speculation or rumours but I can say that NMC has an excellent working relationship with the Saudi government, which has been very supportive of our investments in the kingdom," NMC Health's Chief Executive Prasanth Manghat told Reuters in response to a request for comment.
Healthcare is one of the sectors the Saudi government identified as an early candidate for privatisation under its Vision 2030 plan, announced in 2016.
The country's healthcare market is projected to reach $27 billion by 2020, up from around $16 billion 2015, but there has been little progress on privatisations since Vision 2030 was announced.
Sources familiar with the privatisation process say a lack of organisation within the ministry about who is in charge of the process is also holding back plans.
A tender seeking financial advisers for the privatisation of 55 primary healthcare units in Riyadh remains on hold, as does another tender issued last year to manage the intensive care units of nine hospitals throughout the kingdom, said two sources.
A flurry of anticipated public-private partnerships covering radiology, laboratory, long-term care, primary care and pharmacy have also not yet materialised, with the sources saying the overall process was at least six months behind schedule.
The Saad Specialist Hospital is owned by family members of tycoon Maan al-Sanea but the government stepped in last year to outsource the running of the facility after it became weighed down by financial problems and al-Sanea was detained by authorities for unpaid debt.
Prospective investors are worried, among other things, about whether the debt dispute involving al-Sanea and Saad Group might have fallout for the hospital, the sources said. ($1 = 3.7502 riyals) (Reporting By Tom Arnold; Editing by Susan Fenton)