Wockhart Asset Sale to Abbott Threatened

Foreign lenders, upset over Wockhardt's corporate debt restructuring (CDR) package, have threatened to block the pharma company's $130-million (Rs 630 crore) deal to sell its nutrition business to US company Abbott. Foreign banks claim they got a raw deal from the CDR package—an exercise where lenders sacrifice some of their claims and reschedule repayments to enable the company get back on rails. According to them, the package—which includes debt repayment through sale of assets—favours Indian banks. (Watch)

Opposing the CDR terms, a few foreign banks and some of Wockhardt's foreign currency convertible bond (FCCB) holders have sent legal notices to the Indian company, giving it 21 days to respond, failing which they will file a winding-up petition in a local court. Other foreign banks are also exploring similar action.

When contacted by ET, a Wockhardt spokesperson said, "There can always be some isolated actions which are motivated. However , the CDR process is currently being implemented as per plan." This July, Wockhardt had announced the sale of its nutrition business, including brands like Protinex and Farex, to Abbott which insisted on a no-objection certificate from lenders. Under the circumstances, if some of the banks hold back the approval the deal could take a long time to materialise.

"If the company is not repaying us, why should we give the NOC?" said a senior official with a foreign bank. However , a Wockhardt spokesperson said the transaction with Abbott was on track. The Abbott spokesperson said in an email reply, "We don't comment on contract specifics; however, we anticipate completing the acquisition in the second half of 2009 as we communicated when we announced the transaction."

Sources close to Wockhardt told ET the company has kept Abbott informed of the developments and is trying to work out a settlement with the foreign lenders.

Besides foreign banks, the company will also have to make peace with the FCCB investors. Bank of New York Mellon, the trustees to the convertible issue, recently triggered an acceleration clause enabling lenders to call back funds if the company defaults elsewhere. Bank of New York is also understood to have moved a UK court against Wockhardt.

Responding to this, a spokesperson for the Indian company said, "Wockhardt has not defaulted on its FCCBs, the deadline being end-October 2009. Therefore, there is no question of investors saying that Wockhardt has defaulted.

Over 40% of the lenders have agreed to the options detailed in the CDR." According to him, the scheme for FCCB holders was "finalised in consultation with the CDR committee and any deviation from this will have to be approved by them" . It is not unusual in any restructuring exercise for a few players to take a micro view which may not necessarily pass the test of law, he said.

Wockhardt's troubles began after it took a Rs 1,600-crore hit on foreign currency derivatives. As the company defaulted, some of the banks froze the derivative outstandings and initiated arbitration proceedings abroad. According to the Wockhardt spokesperson, the company has challenged some of the MTM losses.

Wockhardt challenges MTM losses"OUR lawyers have advised us that we have an excellent case. The CDR package also provides two alternatives for banks to choose from for a comprehensive solution ," the Wockhardt spokesperson said.

Of the Rs 1,600-crore derivative exposure , Rs 700 crore is with Indian banks and the balance with foreign banks. Till now, foreign banks have crystallised around Rs 500 crore of derivative exposure . Even though sources close to the company said these were crystallised at the highest rates, foreign banks complained they were treated worse than unsecured creditors. But local banks said their foreign counterparts have been given a similar treatment as Indian banks on derivative exposure.

Besides the derivative liability, Wockhardt lenders also proposed to restructure Rs 1,500 crore of domestic loans, $110 of million FCCBs and $250 million of external commercial borrowing. According to the CDR terms, Wockhardt will sell assets and raise Rs 790 crore to be repaid to lenders by 2015.

The Khorakiwala family, the promoters of Wockhardt , has also agreed to bring in Rs 70 crore in the next one year. Wockhardt sold its German subsidiary Esparma to Lindopharm in June. This was followed by the divestment of its animal healthcare business to French veterinary drug maker Vetoquinol for about Rs 200 crore.

Some of the lenders to the company include SBI, ICICI Bank, HDFC Bank, Punjab National Bank, Corporation Bank, HSBC, Citi, StanChart, Calyon, Abn Amro, DBS, Deustche Bank and ING Vysya Bank.