Glenmark weighs sale of API business to pare debt

Kotak Mahindra Capital Co. Ltd has been hired to run the sale process, and the company has contacted buyout funds to gauge investor interest, the people said.

The company had explored a stake sale in its active pharmaceutical ingredient (API) business in 2019 but then opted for a listing in 2021 after spinning off the entity as Glenmark Life Sciences.

Glenmark Pharmaceuticals and Kotak Mahindra Capital did not respond to queries till press time.

The shares of Glenmark Life Sciences were trading at ₹408.20 apiece, down by over 45% from its listing price of ₹720 per share. The company’s market capitalisation stood at a bit over ₹5,000 crore on Monday on BSE.

“They are asking for the IPO (initial public offering) price," said one of the two people cited above, seeking anonymity.

“The company needs to sell at least 7% over the next 12 -15 months to meet the listing guidelines," the second person said, also requesting anonymity.

Although promoters are exploring a majority stake sale, the deal’s structure could be complicated as it will have to conform to listing norms.

Glenmark Pharmaceuticals still owns a 82% stake in Glenmark Life, and must bring it down to 75% by August 2024, that is, within three years of listing. Furthermore, a stake sale of 25% will trigger a requirement for an open offer of another 26% from public shareholders, which would not be possible as public float is at 18%.

The company has been selling non-core assets to generate cash. In December, it sold cardiac brand Razel in India and Nepal for ₹313.7 crore, and said it was in line with “Glenmark’s strategy of focusing on other sub-categories of the cardiovascular segment". The company will focus on cardio-metabolic, respiratory, dermatology, and oncology, it said in December.

In 2022, Glenmark sold nine dermatology drugs to Eris Life Sciences for ₹340 crore. The deal closed in January.

“Glenmark has used proceeds from the divestment of its brands in India for remediation of its US-based facilities, while the pathway to reduce ₹26 billion of net debt remains uncertain," Elara Capital said in a report on 13 February.

Glenmark’s gross debt was ₹4,210 crore and net debt at ₹2,620 crore as on December 2022 end, it said. Furthermore, Glenmark has brought down its net debt by ₹100 crore since September. Foreign currency debt was at $440 million, and net debt stood at $340 million in December. The company’s Monroe facility did not meet US regulatory requirements, and remediation cost for Q3FY23 was at ₹130 crore, Elara Capital said in its report.

Glenmark Life Sciences reported a 1% rise in quarterly profit for the December quarter on the back of growth in APIs. “Liquidity should be supported by funds available from divestment of a few of its dermatology and cardiac brands over December and January. Any significant payout for settlement of claims as per the anti-trust ruling may impact liquidity and the debt metrics and will be a key monitorable," Crisil Credit said in a rating report on 25 January.