Mumbai: Concerned that a default by Wockhardt Ltd on overseas debt repayments would undermine the credibility of Indian firms and make it difficult for local companies to get foreign loans, the troubled drug maker’s Indian bankers have asked it to prioritize the settlement of secured and non-secured borrowings ahead of settling dues at its subsidiaries abroad.
Wockhardt is currently involved in a complex legal battle with its overseas lenders after a clutch of foreign banks and debt instrument holders moved the Bombay high court seeking liquidation of the company. These winding-up petitions were filed individually and collectively by the foreign creditors.
One of Wockhardt’s foreign subsidiaries, Wockhardt EU Operations (Swiss) AG, is also under pressure from creditors as some of its term loans are coming up for repayment. Wockhardt and its Swiss subsidiary were earlier trying to strike a deal with foreign lenders, which had extended term loans as well as leveraged buyout (LBO) finance to the tune of $250 million (Rs1,135 crore today) in 2007, to restructure repayment modules.
Graphic: Paras Jain/Mint
According to a banker, who did not want to be identified, the Swiss subsidiary has already defaulted on payments.
“The company was advised by one of its bankers to settle part of the dues by using proceeds from the divestment of Wockhardt’s foreign assets,” he said.
The company had sold the German business Esparma GmbH for around Rs120 crore in June, according to an official who did not want to be identified. The company didn’t say whether the money from the sale had been repatriated.
Wockhardt’s French subsidiary Wockhardt France (Holdings) SAS had also availed LBO finance of around €110 million (Rs680 crore today) towards the parent’s acquisition of Negma Laboratories SAS in 2007.
The pressure from Indian bankers to make arrangements to first settle the parent’s dues could mean that Wockhardt will have to put the future of its overseas subsidiaries at risk, as laws on the recovery of loans in Europe are strict.
“It will push the debt-laden company to an extremely tight situation as it will not only put pressure on the Indian company to immediately settle the issues with its own lenders, but also put at risk its subsidiaries, which are likely to be entangled with European debt recovery laws,” said a Mumbai-based corporate lawyer.
A Wockhardt spokesman said the email query sent to him could not be answered as chairman Habil Khorakiwala was not available. But another person familiar with the company’s debt restructuring programme said it has been trying to resolve the group’s dues in their entirety. “The management and the corporate debt restructuring cell of key Indian banks were pursuing talks with overseas lenders to stagger repayment,” he said.
Wockhardt is also struggling with a yet-to-be closed nutrition business divestment deal that it had announced in July due to objections raised by holders of its foreign currency convertible bonds (FCCBs). The sale of the nutrition business to Abbott Laboratories Ltd would have raised a much-needed Rs620 crore, but Wockhardt’s secured and unsecured creditors have moved the courts questioning the Indian company’s rights over any sale proceeds.
While the firm’s secured creditors led by key Indian banks, including ICICI Bank Ltd, State Bank of India and IDBI Bank Ltd, have argued that they have the first right on the sale proceeds, the unsecured creditors, mainly the FCCB holders, have stuck to their earlier demand that they will give their consent to the deal on condition that the proceeds be used to repay them.
The bondholders, led by the US-based QVT, had in a previous hearing of the case in the Bombay high court allowed Wockhardt to proceed with the divestment deal with Abbott, provided the money from the transaction was deposited in an escrow account.