Wockhardt debt restructure sees informal progress

Indian banks may opt for FCCB conversion into preference shares.

Drug company Wockhardt, trying to restructure loans it is unable to pay, got some encouraging news in two separate developments.

This concerns its $140 million (Rs 640 crore) of Foreign Currency Convertible Bonds (FCCBs). Half of this burden has been taken over by a group of banks, led by the State Bank of India. They have given indications of opting for a conversion of the bonds into convertible preference instruments (equity or debt is still being negotiated), with the conversion to take place after eight to 10 years.

This was one of the two options decided on late last year under a corporate debt restructuring (CDR) process. The other option was to have the company buy back the bonds if the holders agreed to sell at a 65 per cent discount on the redemption value. The banks seem to be opting for the first option.

“The details are being worked out,” a senior SBI executive told Business Standard.

The other development is on the half of the FCCB debt still with foreign lenders. Earlier, led by US hedge fund QVT Financial, they had suggested a proposal that would get them a 26 per cent stake in the company. While the stake of the promoters, the Khorakiwalas, presently 72.8 per cent, would reduce to 54 percent.

Sources said the new proposal from the overseas investors asks for Wockhardt to roll over these FCCBs, with a mandatory conversion within five years, which will lead to an equity dilution of only nine per cent in the promoter holding, to about 63 per cent.

For the record, the Wockhardt spokesperson denied any new proposal. A QVT spokesperson declined to comment on the matter, saying it was sub-judice. A QVT executive said the lenders would favourably consider any suggestion from Wockhardt that respected the interests of the investors.

An application for admitting a winding-up petition against Wockhardt was heard by the high court here on Friday. It has been filed by these same overseas investors, led by QVT. They asked that Wockhardt be stopped from concluding the sale of its nutrition business to Abbot. The court didn’t agree and adjourned the matter to January 29.

“Wockhardt cannot consummate transaction of any of its assets, including the nutrition business, till the disposal of the application filed for appointment of a liquidator and for an injunction from selling any of its assets,” said lawyer representing the creditors.