Wockhardt to sell key assets as FCCB deadline nears

Wockhardt to sell key assets as FCCB deadline nears

Mumbai: Wockhardt Ltd has decided to sell assets to raise money to partly repay liabilities arising out of the redemption of $110 million worth of foreign currency convertible bonds (FCCBs).

Wockhardt has sought to raise around $150-200 million (Rs750-1,000 crore) for repaying these liabilities; it needs the extra money to make up for the fall in its stock since the bonds were issued.

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“The company has taken a decision at the board level to sell off some of the non-operational assets in India or abroad to pay up the liabilities," said a senior Wockhardt executive, who didn’t want to be identified because he is not authorized to talk to the media.

He declined to name the asset or assets identified for sale.

“Wockhardt has already engaged a Mumbai-based merchant banker for this deal, with a broader mandate to handle valuation of several assets as well as finding suitable buyers," said a banker familiar with the development who did not want to be named.

The banker added that one of the immediate targets for the sale could be a 32-acre greenfield dairy and milk processing unit in Punjab, which Wockhardt inherited from its 2006 acquisition of Dumex India Pvt. Ltd.

“Dumex’s milk processing unit can be sold for a premium... However, the company may find it difficult to get a strategic buyer, as the big players including some multinational companies in this space already own similar plants with adequate production capacity, in India," the banker said.

Wockhardt also owns at least 250 acres of land in Aurngabad, where it has some manufacturing plants and a research and development centre.

Another high-value asset that the company owns is its landmark building at Mumbai’s Bandra-Kurla Complex, where it is headquartered.

The banker said Wockhardt may also look at divesting one of its subsidiaries or assets overseas. “One of its overseas subsidiaries, which can potentially get a higher valuation in the current market situation, is the Ireland-based Pinewood Laboratories Ltd."

An email sent to the company last week on the potential sale of Pinewood remained unanswered till Tuesday.

Wockhardt had acquired Pinewood in 2006 for $150 million (around Rs690 crore then). This company, with a revenue of around €65 million, grew sales by around 15% after the takeover, the Wockhardt executive said.

Mint reported in November that Wockhardt, the country’s sixth largest drug maker, was in talks with some private equity (PE) firms and strategic partners to raise around $150-200 million (Rs750-1,000 crore).

Wockhardt discussed the sale with at least two PE firms in November. An overseas drug maker had also shown interest in buying a strategic stake in the company, according to two people familiar with the development who had declined to be named. The talks, however, hit a roadblock as Wockhardt expected a high valuation, they said.

Wockhardt needs money to deal with liabilities arising out of the redemption of FCCBs, issued in 2004 at a conversion price of Rs486 per share and due to mature in 10 months.

Wockhardt shares have lost 74.8% this year and ended Tuesday at Rs105.15 each on the Bombay Stock Exchange.

If, instead of converting the bonds, investors redeem the FCCBs, they will earn a return of 29.58% on their investment thanks to the coupon rate of 5.25% (compounded semi-annually).

For investors to consider converting their bonds into shares, the Wockhardt scrip will have to trade higher by at least 29.58% over the conversion price of Rs486.

In other words, Wockhardt shares need to rise by about 410% from current levels—to Rs535.68 a share—for any prospect of the FCCBs being converted into shares.

According to the terms, Wockhardt would have to pay $142.5 million when the bonds become due in October 2009.

Wockhardt had in November maintained that “...it is in the process of evaluating various options to raise additional funds, including equity participation."

In 2007-08, the company’s cash flow from operations stood at Rs371 crore against ongoing capital expenditure of Rs336 crore, leaving it a cash surplus of just Rs35 crore.

The company’s current debt is about Rs2,900 crore, compared to an equity base of Rs1,274 crore, or a debt-equity ratio of 2.28:1, making further debt financing harder to come by in a market already squeezed for credit.

Several Indian companies that have raised funds through FCCBs may opt for borrowings from domestic banks after the Reserve Bank of India decided to allow Indian companies to buy back FCCBs.

Wockhardt’s high debt-equity ratio, though, may not allow it to opt for this route, said an analyst with a foreign equity research firm who didn’t want to be identified.