Creditors may trip Wockhardt deal with Danone

Written by MG Arun | Mumbai | Updated: Aug 5 2011, 05:33am hrs
Disgruntled creditors may once again play spoilsport for troubled pharma company Wockhardt and question the R1,575-crore deal that company inked with French dairy major Danone to sell its nutrition business.

Bondholders of Wockhardt, who had filed a winding up petition against the pharma company for recovering their investments worth R650 crore, say they still are unsure whether Wockhardt will settle their dues, and are on a wait-and-watch mode before their next action. We still have no data on the entire transaction. How do we ensure that we are paid said an executive at one of the bondholders, on condition of anonymity.

He said lawyers are studying the case, and that the bondholders cannot allow any value destruction in the company through a sale of assets, hinting at a long and protracted legal battle between the company and its unsecured creditors. Holders of foreign currency convertible bonds (FCCBs) of Wockhardt include Singapore-based hedge fund QVT Financial LP and an overseas unit of Sun Pharmaceutical Industries. Shares of Wockhardt were down 3.18% on the BSE on Thursday to close at R427.35.

An earlier attempt by Wockhardt to sell its nutrition business to US-based Abbott Laboratories for around R630 crore fell through last year, eight months after both companies announced an agreement, owing to opposition from a section of the company's creditors. This time round too, industry observers expect a long legal battle, if the current deal with Danone fails to convince bondholders that their money will be recovered. If there is a provision in the agreement, setting aside part of the money from the sale to bondholders, we will be most happy. If not, we expect the court to protect the interest of the petitioners, sources added. Wockhardt has already moved the Bombay HC for legal clearance of the deal with Danone.

However, sources close to Wockhardt say the company has a commitment towards the 17 banks who have come to their help at the time of crisis. More than unsecured creditors, the secured creditors (led by ICICI Bank) will have to be taken into consideration. Wockhardt is a responsible company and needs to revive itself first, before it can pay off its creditors. It's for the court to decide what should be the next step. Wockhardt is being advised by Majumdar & Co, and BNY Corporate Trustee, representing the bondholders, is advised by DSK Legal.

Saddled with a debt of about R3,700 crore, Wockhardt had defaulted on its FCCB repayment and gone in for a corporate debt restructuring (CDR). Under the CDR programme, the pharma company had offered to settle repayment of FCCBs, issued by it in 2004, at a discount.