Wockhardt CMD Khorakiwala quits; Fortis takeover likely

01 April 2009

The troubled pharmaceuticals major Wockhardt yesterday announced a major organisational change and admitted that it was facing problems  in servicing its debt. Its chairman and managing director Habil Khorakiwala has stepped down as managing director to make way for his younger son, while the company has decided to approach the corporate debt restructuring cell through its lead banker in the wake of mounting debt. 

In a statement to the Bombay Stock Exchange issued after market hours, the Mumbai-based hospital chain said its board had decided to approach the CDR cell of ICICI Bank due to ''adverse market conditions, liquidity constraints and debt burden.'' In effect this means that Wockhardt is seeking bankruptcy protection.

The development will give a boost to the efforts by rival chain Fortis Healthcare to acquire a majority stake in Wockhardt, unconfirmed talks of which have been doing the rounds. The talks had been getting bogged down. However, the Ranbaxy-owned Fortis continues to decline official comment. (See: Fortis seeks nod for rights issue; may acquire Wockhartdt)

The debt burden on Wockhardt Ltd has become high enough for it to need restructuring, and the promoters - Habil Khorakiwala and family - need to bring in more equity to tide over the current crisis. Hence they are seeking to raise resources by divestment of other assets.

The company's debt obligation is already in the region of Rs2,800 crore, and with a debt-equity ratio of 2.3:1, and its capacity to raise loans is constrained. There is also redemption pressure on foreign currency convertible debentures (FCCBs) of $110 million face value, slated in October this year. The redemption amount would actually amount, with interest, to $140 million. And the redemption is inevitable given the conversion price of Rs486 per share of FCCB, against the current market price of around Rs85 per share.

Analysts say Wockhardt's company's market capitalisation of Rs936 core is tiny compared to its debt burden of over Rs3,000 crore. There is also intense speculation that the company has incurred substantial mark-to-market losses because bets on foreign exchange-based derivatives had gone wrong.