Wockhardt offers 65% haircut to FCCB holders

Holders of foreign currency convertible bonds (FCCBs) of Wockhardt Ltd, the beleaguered pharma major, have been offered buyback at a 65% discount to the conversion price.

For bondholders who do not wish to participate in the buyback, Wockhardt has also given an option to exchange the bonds for preference shares that are partly convertible in 2015 and partly redeemable in 2018.

Sources said investors will certainly clamour for more, but they may not have much say in what happens to their money.

That is because lenders to Wockhardt led by ICICI Bank on June 30 approved a corporate debt restructuring (CDR) plan after the company racked up huge losses as forex hedges went wrong.

The CDR lenders have a final say in the terms of redemption/conversion, sources said.
Wockhardt had issued 1.1 lakh zero-coupon bonds of $1,000 each in October 2004, with the conversion/redemption date set as October 25, 2009, at Rs 486 per share.
At that price, bond holders would have got a return of nearly 130% on their investment in
five years.

But the Wockhardt share closed at Rs 162.35 on the Bombay Stock Exchange on Friday, or 67% lower than the conversion price.

FCCBs normally offer investors a certain amount of interest (Wockhardt’s did not; it’s a zero-coupon bond) and the option to convert their bonds (partially or fully) into equity.
It does not make sense for an investor to convert if the market price of the share is far below the conversion price, for he will then book a loss.

The other option is to sell the bonds back to the company and get whatever cash is offered.

A Wockhardt spokesperson told DNA that 40% of the lenders have agreed to the options given under CDR.

“Negotiations with the remaining lenders are on,” he said.

“The timeline in the case of the preference shares option is too long and details too vague,” said an analyst tracking the developments. “So it may not enthuse investors.”
Indian companies have issued FCCBs worth $20 billion in the last five years, as the interest rates on them were lower compared with prevailing local rates for loans.

Wockhardt chairman Habil Khorakiwala said at last week he expected the CDR process to be completed in six months.

Wockhardt has been selling non-core assets to raise money to reduce it’s mountain of debt totaling Rs 3,700 crore.

Last month, Wockhardt also sold 10 hospitals (including two greenfield under construction) to Fortis Healthcare for Rs 909 crore. However, proceeds are to be used for Wockhardt Hospitals, which is not a part of the listed pharma company.

Earlier, Wockhardt sold its animal healthcare business to France-based veterinary drug maker Vetoquinol for about Rs 200 crore.

Then it sold its nutritionals businesses, which included two major brands Farex and Protinex, to Abbott Laboratories Inc.

This was followed by the sale of its German subsidiary Esparma to Lindopharm.
“So far we have raised about Rs 800 crore,” Khorakiwala said last week.

For the quarter ending June 2009, Wockhardt posted consolidated net loss of Rs 189.9 crore on account of huge foreign exchange losses. Net profit for June 2008 quarter stood at Rs 105.8 crore.