Wockhardt Ltd, the Mumbai-based pharmaceutical company which has been under the US FDA scanner over regulatory issues, is set to raise about $300 million through sale of dollar-denominated bonds. It has hired UBS, Barclays, Nomura and Standard Chartered to manage the fundraising process, according to two people aware of the development.
Wockhardt plans to raise the cheaper capital to expand the formulation and R&D businesses as well as refinancing the existing loans, said one of the two people aware of the development.
Due to a severe cash crunch, Wockhardt is facing a refinancing risk in FY19.
"Servicing large upcoming term debt repayments of Rs 1,140 crore in FY19 and Rs 740 crore in FY20 in the absence of a sharp turnaround in operating profitability will be challenging. Wockhardt’s free cash flow turned negative in FY17 due to the weak operating profitability and capacity additions and is likely to remain so in FY18-FY19," said a recent report by India Ratings and Research. The delay in raising funds will further stress Wockhardt’s liquidity to service debt obligations.
However, raising a dollar bond will not be easy for a company without a better international credit rating, believe experts.
"Raising dollar bonds will be tough for a highly leveraged company with a poor rating. Structure-wise, it has to use the money for refinancing the loans of offshore subsidiaries and not the rupee debts," said a Mumbai-based investment banker.
Seven of Wockhardt’s facilities were under regulatory restrictions by US FDA by December 2017. Its one formulation facility in Waluj and one in Chikalthana continue to be under import alerts since 2013. Another facility in Waluj received a warning letter in 2013. The facilities under the subsidiaries UK-based CP Pharmaceuticals and US-based Morton Grove Pharmaceuticals Inc were also issued warning letters in FY17. Morton Grove Pharmaceuticals and the facilities in Waluj contribute around 80% to the sales to US markets.
International business contributed 62% of Wockhardt's total revenue in FY18. From a price of Rs 891 in December last year, shares of Wockhardt went down and traded at Rs 643 on Tuesday. Net loss of the company stood at Rs 608 crore for the fiscal ended March 31, against Rs 196 crore in the previous fiscal.
However, raising dollar bonds seems to be tough for Indian companies due to the interest rate hikes by the US Federal Reserve and a volatility in the US bond market.
Indian companies had raised $16.20 billion in 2017, next only to the $19.58 billion raised in 2014. Money raised through dollar bonds has come down to $3.35 billion in January-April 2018 from $4.59 billion in the same period last year, according to Bloomberg data.
"Cost is no longer a driver in raising dollar bonds. Pharmaceuticals or IT companies with a decent dollar revenue and a natural hedge can be benefited through the dollar bonds," the above mentioned banker said.
