As Market Crashes, India’s Wockhardt Is Pushed To Consider Equity Dilution To Raise Funds To Repay Debts
This article was originally published in PharmAsia News
Executive Summary
MUMBAI - A headlong fall in market valuation of large Indian drug makers over the last year is pushing their promoters to consider equity stake dilutions to repay debts or honor similar commitments. India's sixth-largest drug maker Wockhardt may see its promoter Habil Khorakiwala dilute 10 to 15 percent of his and his family's 74 percent equity in favor of private-equity players to raise about $150 million, PharmaAsia News has learned
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MUMBAI - A headlong fall in market valuation of large Indian drug makers over the last year is pushing their promoters to consider equity stake dilutions to repay debts or honor similar commitments. India's sixth-largest drug maker Wockhardt may see its promoter Habil Khorakiwala dilute 10 to 15 percent of his and his family's 74 percent equity in favor of private-equity players to raise about $150 million, PharmaAsia News has learned. Experts say Wockhardt may also look at strategic alliances with multinational pharmaceutical companies in case valuations and operational synergies look appealing against those given by private equity players who are in the bidding race. The money thus raised will be used to pay investors of the Foreign Currency Convertible Bonds that Wockhardt used to raise $110 million in 2004. The 2004 FCCB issue was a zero coupon, five-year paper with a yield of 5.25 percent semi-annually. The redemption of the FCCB from Wockhardt is due sometime in 2009. Market analysts said more companies that raised finances through the FCCB option may go for dilutions but a list of such companies could not be obtained immediately. Earlier, when queried by PharmAsia News about a possibility of fundraising through equity stake dilution, Wockhardt chairman Habil Khorakiwala categorically denied any such move. Investment bankers and private equity players told PharmAsia News that Wockhardt has expectations of very high valuations that may delay the deal by several months or prevent it from materializing. Sources said Wockhardt officials expect the valuations to be pegged at 300 rupees ($6) per share against the current market price of 96 rupees ($2) per share. Due to consecutive and expensive acquisitions like Pinewood in Ireland, Negma Labs of France and Morton Grove Pharmaceuticals in the U.S., Wockhardt has now run up debts of more than $500 million. The acquisitions were also partly funded through cash raised from the FCCB issue. Analysts say the high amount of debt that has piled up on Wockhardt's books may restrict the company's ability to do more debt financing and so promoters may be compelled to dilute their own holdings. Wockhardt has been one of the most acquisitive companies in India after Ranbaxy. More than 50 percent of Wockhardt's 2007 revenues of 2653 crore rupees ($530 million) came from Europe while its share from the U.S. market continues to pick up as the company ramps up abbreviated new drug application filings for selling generic drugs in the U.S. market. Wockhardt had predicted a 15 percent annual growth at the back of its acquisitions in Europe and U.S. (Also see "PharmAsia News Notable Notes: Will Rising Rupee Continue To Hold Back Retooled Indian Pharma Firms?" - Scrip, 5 Mar, 2008.) - Vikas Dandekar ([email protected]) |