Ind-Ra downgrades Wockhardt to IND BB+ with negative outlook

India Ratings and Research (Ind-Ra) has revised pharmaceutical and biotechnology major Wockhardt's short-term bank facilities and commercial paper to IND A4 plus from IND A3 and for long-term loan facilities rating to IND BB plus/negative from IND BBB minus/negative.

The revision is owing to refinancing risks, research and development expenses, and regulatory overhang.

Ind-Ra said the downgrade and negative outlook reflect significantly elevated refinancing risks for Wockhardt in the second half of current financial year due to its weak liquidity position for servicing its upcoming debt maturities over the same period.

In the absence of a meaningful recovery in operating performance, the company has witnessed continuous depletion in cash balances (Q1 FY20: Rs 186 crore, FY19: Rs 448 crore, FY18: Rs 1,244 crore) for servicing debt obligations.

Furthermore, the agency expects weak free cash flow (FY19: negative Rs 130 crore, FY18: Rs 332 crore) generation in FY20.

In FY19, the company's promoters infused Rs 250 crore in the form of redeemable preference shares to refinance Wockhardt's outstanding preference debt. The management is evaluating refinancing options for the large upcoming debt repayments (Q2 FY20 to Q4 FY20: Rs 490 crore, FY21: Rs 841 crore) through term loans and other capital infusion options in India and abroad.

Also, additional financial support from the promoters through the issuance of redeemable preference shares of Rs 250 crore as per a board resolution dated December 2018 and proposed debt issuances may provide liquidity back-up till the second half of FY20.

Based on a discussion with the management, Ind-Ra expects the shortfalls in debt servicing if any to be met by the promoters through fund infusions. Hence, a meaningful operational turnaround in FY20 and continued promoter support is a key rating sensitive factor.