The termination of a Rs 630-crore deal to sell its nutrition business to US-based Abbott Laboratories is the latest in a string of troubles for debt-ridden pharma company, Wockhardt Ltd. Abbott has said that the reason it is calling off the deal is that the Indian company is unable to resolve debt restructuring issues with some of its lenders. Going by all indicators, the impasse over the restructuring is unlikely to be resolved any time soon; that could put even future asset sale plans of the Khorakiwala-owned firm in jeopardy. It looks like it?s going to be a while before Wockhardt finds a new buyer for its nutrition business.

It was in April last year that Wockhardt realised it needed help to stay afloat; it had little choice but to ask for help from its bankers. It wanted assistance from them to restructure its corporate debt and approached the corporate debt restructuring (CDR) cell through its banker, ICICI Bank. The company, which has piled up a debt of Rs 3,700 crore, said it would raise Rs 790 crore by divesting its non-core business by 2015 as part of the CDR programme.

In July 2009, Wockhardt entered into an agreement with Abbott to sell off its nutrition businesses, as it looked to raise funds to repay debt. While the value of the deal was not officially announced, it was estimated to be worth around $130 million or about Rs 650 crore. Brands included as part of the deal were adult food supplement Protinex and infant food brands like Farex, Dexolac and Nusobee. Also included were two manufacturing facilities. Last year also saw the sale of another two of Wockhardt?s non-core businesses ? animal health to French company Vetoquinol and its German subsidiary Esparma to another German company Lindopharm. This is estimated to have brought in Rs 300 crore for the Indian company.

Early signs of Wockhardt?s troubles began with the calling off of an initial public offering (IPO) for its healthcare arm, Wockhardt Hospitals, in 2008. Wockhardt Hospitals was planning to raise over Rs 800 crore to fund its expansion across the country through greenfield and brownfield projects. But the IPO succumbed to the volatility in stock markets, making the company withdraw its IPO due to feeble response from investors. The decision not to proceed with the IPO, according to the company, was made in light of continued global and domestic market volatility and poor market sentiments and the resultant effect on subscription levels in the IPO.

Ever since, the company has been under much media glare, with constant reports on how it is attempting to bring in funds through a stake sale in Wockhardt Hospitals. There was a general feeling that deals were not materialising since the promoters were hung up on the valuation front, considering the potential growth of the healthcare sector in India. However, in an interview with this newspaper last year, Habil Khorakiwala, Wockhardt?s executive chairman, refuted such allegations, and promised some immediate action. That did happen, and in June last year, Wockhardt sold ten of its hospitals to Fortis Healthcare for a little over Rs 909 crore. The deal included eight functioning hospitals of Wockhardt and Rs 190 crore towards capital for two under construction ones. Announcing the deal, Khorakiwala said the company will use the funds to clear its debt, and the remaining amount will be used for the ten hospitals that Wockhardt still kept under its control. The Fortis, Abbott, Vetoquinol and Lindopharm deals would have together brought around Rs 1,850 crore for Wockhardt.

While the deals, except for Abbott, seemed to have gone smoothly, fresh trouble for the company began to brew a few months ago when a group of investors, represented by QVT Financial, a $9 billion multi-strategy US-based fund, approached the Bombay High Court to demand that the Indian firm be wound up. This, they said, was because the Indian company failed to pay up its outstanding foreign currency convertible bonds (FCCBs) worth $140 million that were due for redemption in October last year.

QVT also said it is disappointed that neither Wockhardt nor the CDR lenders have engaged in a meaningful dialogue with the holders of the defaulted bonds with respect to a restructuring plan it put forward. Under the restructuring proposal, bondholders will exchange their defaulted bonds for newly issued FCCBs with a five-year maturity. If Wockhardt continues to ignore the efforts made by holders of the defaulted bonds to salvage the situation by restructuring the debt in a mutually acceptable manner, the company may remain exposed to this winding up action, which may restrict the company from selling its nutrition business, it said. Wockhardt?s worst fears have come true and the deal with Abbott was called off early this month. That had made it even more difficult for Wockhardt to get rid off its debts.

What is the way forward now for the drug firm? According to a Mumbai-based analyst, the portfolio of products that the company has in its nutrition business is sound enough to get the company a good price. In fact, the day the deal was terminated, Wockhardt?s shares were up 3.2% at Rs 143.30 on the Bombay Stock Exchange as investors anticipated a better deal for the business from another potential buyer.

Wockhardt had reported a net loss of Rs 181 crore for its fourth quarter ended December 31, 2009 against Rs 357 crore for the same quarter of previous year. Consolidated sales revenues stood at Rs 889 crore against Rs 997 crore, a decline of about 9%.Wockhardt?s India branded business grew by 23% in Q4 of 2009 over the corresponding period, as per ORG-IMS.

The UK business grew 21% compared with the industry growth of just 4% in the quarter, the drivers for this growth being hospital products that grew by 16% and exports by 38%. According to reports, Pinewood Healthcare in Ireland maintained steady sales with a growth of more than 8% in exports. Negma Laboratories? cardio-vascular brand, Nebilox grew by 25%.

These may be silver streaks on an otherwise dark and cloudy skyline, but it is just impossible to wish away Wockhardt?s troubles, and, given the lack of transparency in the company, which has prompted brokerages from even tracking the company, there could be more trouble on its way.