Drug major Wockhardt today joined the growing list of Indian companies to be referred to the Corporate Debt Restructuring (CDR) mechanism, a system to deal with cases in which multiple lenders are involved.
CDR cases went up three-fold to over 30 in 2008-09 from only 10 in the previous financial year, indicating the worsening repayment capability of Indian companies.
In its announcement, Wockhardt also said Habil Khorakiwala, currently chairman and managing director, has stepped down as managing director and will continue as executive chairman. The board nominated his son Murtaza H Khorakiwala as managing director, subject to approval from shareholders.
The board also appointed Murtaza and Khorakiwala's younger son, Huzaifa, currently executive directors, additional directors. Huzaifa has been appointed whole-time director, designated executive director.
Wockhardt's promoter-family, which holds 74 per cent in the company, has pledged 79.21 per cent of its shareholding to various banks and institutions.
In a statement to the stock exchanges, Wockhardt said its board had decided to refer to the CDR Cell through its lead banker, ICICI Bank, for financial restructuring of its debts. This was necessary, Wockhardt said, in view of adverse market conditions, liquidity constraints and its debt burden.
The company also postponed its annual results, due to be announced today, to April 25, as the evaluation of a potential restructuring of certain businesses and its units had delayed the audit. The company follows a January-to-December financial year.
The reference to CDR was inevitable because Wockhardt's net debt went up by 17.25 per cent to Rs 3,400 crore in December 2008 from Rs 2,900 crore a year ago.
The company's market capitalisation has slumped almost 85 per cent from its all-time peak of Rs 6,150 crore on March 7, 2006, to Rs 935.71 crore.
Normally, CDR would involve a debt and interest moratorium, interest rate subsidy, a fresh infusion of funds and conversion of debt to equity or preference capital.
The market welcomed the move, with the Wockhardt stock gaining 7.14 per cent to close at Rs 85.50 at close of trading today.
The announcement came amid high drama, as Wockhardt first postponed the time of its results press conference from 3 pm to 5 pm today and then cancelled it, fuelling speculation that talks with potential buyers for a stake in Wockhardt Hospitals collapsed at the last minute.
In an email to employees in the morning, Khorakiwala said Wockhardt Hospitals was looking for a minority investor to help it raise additional capital and continue to grow. "We are fully determined to conclude the infusion of funds in our Wockhardt Hospitals at the earliest," Khorakiwala said.
The company was forced to abandon its initial public offering planned for early 2008, following poor response in a worsening market situation.
Wockhardt's debt position has been a cause for alarm, as the company also has to repay a $140 million FCCB (Foreign Currency Convertible Bonds) obligation which is due in September this year. In order to meet this, the company has been trying to sell a few of its acquired subsidiaries over the last six months. But the talks have not fructified, following disagreements over valuation.
Analysts said aggressive expansion through acquisitions via debt had put Wockhardt in a tight spot, following the market crash and an economic slowdown. "There are many highly-leveraged Indian drug companies that expanded rapidly in the last few years through fancy acquisitions. Those companies will have to dispose of their assets because returns from investments are slow and markets are changing in the US and Europe," said Sujay Shetty, head of life sciences at PricewaterhouseCoopers.
Sources said the acquisitions did help Wockhardt become the largest Indian pharmaceutical player in Europe, with over half of its revenue coming from that market. The Rs 2653-crore drug major earned 64 per cent of its revenues from Europe and the US in 2007.
In October 2006, the company acquired Ireland-based Pinewood Laboratories for $150 million. Within another five months, Wockhardt bought Negma Laboratories of France for another $265 million to enter the French market. In November 2007, the company again paid another $38 million to buy Morton Grove Pharmaceuticals of US. "It will be difficult for Wockhardt to maintain growth in the long term unless it is able to get out of the current mess. The repayment of FCCBs has beaten down the stock and thus valuations. For the shorter term, we do not see much momentum in its business," said Sarabjit Kaur Nagra, vice-president, research with Angel Broking.
The company had earlier planned to spin off its research activities to a separate company, but had to drop the plan, owing to adverse market conditions
