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Wockhardt’s debt restructuring done, business needs to deliver

Wockhardt’s debt restructuring done, business needs to deliver
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First Published: Mon, Nov 30 2009. 11 47 PM IST

Naveen Kumar Saini / Mint
Naveen Kumar Saini / Mint
Updated: Mon, Nov 30 2009. 11 47 PM IST
Wockhardt Ltd’s share price rose by 9% on Monday initially, but closed much lower, gaining only 2.4% The trigger seemed to be reports that the company and DBS Bank had reached an out of court settlement on outstanding liabilities. Last week, the pharmaceutical company approached its shareholders to approve its proposed Rs750 crore preference share issue. The debt-ridden pharmaceutical company has taken up a corporate debt restructuring package with its lenders. Some banks have chosen to go to court, however, to recover their dues. The market’s reaction was perhaps at the possibility of the dissenting banks settling and Wockhardt’s corporate debt restructuring, or CDR, package being implemented without any hiccups.
Naveen Kumar Saini / Mint
The preference share issue portion of the scheme postpones cash outflows from Wockhardt to the second half of 2018. Wockhardt’s foreign currency convertible bonds (FCCBs) matured on 25 October 2009, with a redemption value of about Rs660 crore. Half of this liability will be met by issuing 0.01% non-convertible cumulative preference shares (NCPS), to be redeemed at a 38% premium in September 2018. For the rest, 0.01% optionally convertible preference shares (OCPS) will be issued. They can be concerted after October 2015 or redeemed in 2018.
A part of its annual interest liability—2% on most loans—is also being converted into NCPS. Its derivative losses will be met by issuing NCPS that will be redeemed at a 20% premium in December 2018. Its open derivative liabilities are being settled with a mixture of NCPS and OCPS being issued.
Wockhardt will thus manage its Rs1,441 crore estimated liability during calendar 2009. Part will be met from sale proceeds of its animal health and nutrition businesses, estimated at about Rs790 crore. The rest will be taken care of by the CDR. Since preference shares are quasi-equity, Wockhardt’s debt to equity ratio will fall to more reasonable levels. That will give it easier access to fresh working capital, essential to grow its business.
The sale of its divisions will hurt top line and profit growth in the near term; they contributed to about 6% of Wockhardt’s revenues and Ebidta (earnings before interest, taxes, depreciation and amortization) in calendar 2008.
Its core pharmaceutical business will drive sales and profit growth. That will enable it to service it existing liabilities and have enough cash to meet its future dues from the CDR package.
Wockhardt got about half its revenues from Europe, 18% from the US and 27% from India in 2008. During the September 2009 quarter, consolidated revenues grew by 2.2% to Rs922 crore and Ebidta fell by 6.3% to Rs182 crore. But it incurred a loss due to mark-to-market losses, forex losses and provision for premium for FCCB redemption. These will be lower after the CDR package is implemented. Wockhardt’s core pharmaceutical business now needs to deliver results, on a sustained basis, for a few quarters, for the company to regain credibility with investors. Till then, such uptrends in its share price may not last for long.
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First Published: Mon, Nov 30 2009. 11 47 PM IST