Report prepared by

Hashir burney (62720)

Saad (62660)
Sidra Mustafa (62615)

R e p o r t S u b m i tt e d t o
Dr. M. Arsalan Hashmi

11/7/2020
Contents
Executive summary.....................................................................................................................................3

Company Background..................................................................................................................................3

Business Model...........................................................................................................................................3

Growing Presence around the world...........................................................................................................3

Company Research area..............................................................................................................................4

Product details............................................................................................................................................4

Major Competitors......................................................................................................................................4

SWOT Analysis.............................................................................................................................................5

Operating history and acquisitions..............................................................................................................5

Raising Funds for Acquisitions.....................................................................................................................5

Situational Analysis......................................................................................................................................7

Financial Position as on 2016......................................................................................................................7

Financial position at a glance.......................................................................................................................9

Practical solutions to the problem along with their pros and cons.............................................................9

1. Reduce the interest.......................................................................................................................10

2. Debt-for-equity swap.....................................................................................................................10
Issue callable bonds...............................................................................................................................11
Recommended solution:...........................................................................................................................11

Corporate Debt Restructuring:..................................................................................................................11

Case of Wockhardt- Corporate Debt Restructuring:..................................................................................13

Executive summary
Wockhardt is serving for almost 60 years . It is India’s leading research-based global healthcare
enterprise with relevance in the fields of Pharmaceuticals, Biotechnology and a chain of advanced Super
Specialty Hospitals. Under this case it discuss about Wockhardt background when it is founded and it
also define its business moreover how the organization expanded their operation globally through the
approach of acquisition many major acquisition performed .major acquisition dome in the UK, Germany,
the USA and France base companies .For Financing company strategy had been primarily funded
through secured loans and (convertible) public debt. This case discus how firm do financing for
acquisition and what impact show on company financial position due to cover debt .this case also
explain in what way company restructure its debts and how it can implement in practical manner

Company Background
Wockhardt was founded by Habil Korakiwala in the 1960s. he company was incorporated as alimited
liability, public company in 1999. Wockhardt is a global pharmaceutical and biotechnology organisation,
providing affordable, high-quality medicines for a healthier world. It is India’s leading research-based
global healthcare enterprise with relevance in the fields of Pharmaceuticals, Biotechnology and a chain
of advanced Super Speciality Hospitals.
Wockhardt is a true Indian Multi-National Company with a multi-ethnic workforce of 8600 Wockhardt
Associates from 21 different nationalities globally. It has 3 research centres and 12 manufacturing
plants, with businesses ranging from the manufacture and marketing of Pharmaceutical and Bio-
pharmaceutical formulations, Active Pharmaceutical Ingredients (APIs) and Vaccines.

Business Model
Wockhardt is a business in transition. New and innovative business models are in motion to make the
most of emerging opportunities. A new drive for growth today permeates every mind-set, process and
techno-innovation within Wockhardt.

Growing Presence around the world

Headquartered in Mumbai, India, Wockhardt has full-fledged operations in the USA, UK, Ireland and
France. It also has its marketing presence in emerging markets of Russia, Brazil, Mexico, Vietnam,
Philippines, Nigeria, Kenya, Ghana, Tanzania, Uganda, Nepal, Myanmar, Sri Lanka, Mauritius, Lebanon
and Kuwait.

Company Research area

Workhardt core business Includes R&D, marketing and manufacturing. It Launched 08 new products it
has Product basket near 87 it has 10 Certificate of Suitability of European Pharmacopeia. .Currently Anti-
infective molecules are in clinical trials

Product details
Product Therapy Products Therapy

Major Competitors
Following are major competitors that are dealing with same business (product)
Company Name Symbol
Aarey Drugs & Pharmaceuticals Ltd. AARDRU
Aarti Drugs Ltd. AARTDR
Aarti Industries Ltd. AARIND
Aayush Food & Herbs Ltd. AAYFOO
Advik Laboratories Ltd. ADVLAB
Ajanta Pharma Ltd. AJAPHL
SWOT Analysis
SWOT stands for 'Strengths, Weaknesses, Opportunities and Threats'. This is a method of analysis of the
environment and the company's standing in it. For analysis regarding company ongoing situation SWOT
analysis use
Strength
 Rising Net Cash Flow and Cash from Operating activity is one of the key strength
 Annual Net Profits improving for last 2 years
 Effectively using Shareholders fund - Return on equity (ROE) improving since last 2 year
Weakness
 Inefficient use of capital to generate profits - RoCE declining in the last 2 years
 Decline in Net Profit with falling Profit Margin 
 Promoter decreasing their shareholding
Opportunities
 Rising Delivery Percentage Compared to Prev Day
 Rising Delivery Percentage Compared to Previous Day and Month, Strong Volumes
Threats
 Indian stocks that could be impacted by Brexit (Britain leaving the EU)
 Companies with high market cap, lower public shareholding

Operating history and acquisitions

Wockhardt had been an active acquirer throughout the 2000s. Wockhardt grew through aseries of
acquisitions in the UK, Germany, the USA and France Some major acquisition given below
 Pinewood, Ireland (October 2006 )
 Negma Laboratories, France (May 2007
 Morton Grove, the USA (October 2007
 2003- CP Pharma for $18mn. Through this acquisition Wockhardt became one of the top 10
generic companies in UK

Raising Funds for Acquisitions

Wockhardt’s global expansion strategy had been primarily funded through secured loans and
(convertible) public debt. It raised debt from domestic banks as well as international markets to fund its
expansion. This debt was raised as a mix of secured loans and unsecured loans including the foreign
currency convertible bonds (FCCB)
Wockhardt has a working capital loan of around Rs 300 crore though a consortium. Rs 300 crore loan
from ICICI Bank, Rs 750 crore loan from SBI. IPO of Wockhardt Hospitals was called off in Feb 2008 due
to under-subscription.
For foreign lenders getting financing from include- Calyon Bank ,Barclays Bank , HSBC , Deutsche Bank ,
Citi Bank , Singapore-based DBS Bank , Wockhardt also undertook LBO financing for both Pinewood and
Negma worth approximately $200 million.

D 1.8
e 1.54
b 1.6
t 1.4
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q 0.96 0.96
u 1 0.860.86
i 0.8 0.76
0.67
t
y 0.6
0.4
0.4 0.33
R
a 0.2
i
t 0
o 2008 2007 2006 2005 2004 2003
Debt to equity ratio
Debt to equity ratio Linear (Debt to equity ratio)
Long Term debt-equity ratio
Situational Analysis

In Sept. 2004, the company issued 110,000, 5-year, zero coupon FCCBs of Face Value US$1,000 each,
total issue size of issue US$110 M moreover these bonds were redeemable on the maturing date at
129.578% of the face value i.e., at US$1,295.78 in Oct 2009 total payable at maturity = US$142.54 M
(US$1,295.78 x 110,000 bonds) Bond holders could convert the bonds at any time on or after Nov. 24,
2004, but prior to the close of business on Sept. 25, 2009 Each bond could be converted into 94.265 fully
paid-up equity shares with a par value of Rs 5 per share at a fixed price of Rs 486.075 per share 1 Bond
FV $1,000 = INR 45,819.3738 Or, $1 = INR 45.8194 The company also had the option to redeem these
bonds in full, not in part, at any time on or after Oct. 25, 2007 But not less than seven business days
prior to the maturity date i.e. Oct. 25, 2009 The FCCBs issue was oversubscribed by five times These
Bonds were listed at Hong Kong Stocks Exchange (HKEX)  First Indian Company to list debt or equity
at HKEX
Impact of Global crises
The company posted PAT of INR 2.13 B in 2007, INR depreciated by ~20% since April 2008 Breached the
psychological mark of INR 50 in Nov 2009 LIBOR for all major currencies collapsed Huge losses due to
mark-to-market: INR 4,900 M due to forex contracts In Jan 2008, the company started to spinoff some of
its units, mainly R&D, to create value for shareholders’
• Stock price:
 Jan 2003 INR 151
 Mar 2006 INR 506
 Early 2009 INR 109
Due to this share price and global credit crunch it was not feasible for bondholders to convert it into
shares, and hence DEMAND FOR PAYMENT!

Financial Position as on 2016

Income statement from year 2003 to 2008 explaining about company profit per year as per below
mention details in 2008 company earn lost profit as compare to previous year
In below mention details balance sheet for year 2003 to 2008 showing major decline in equity capital in
the year 2008
Financial position at a glance

Practical solutions to the problem along with their pros and cons
Debt restructuring: a process used by companies to avoid the risk of default on existing debt or lower
available interest rates

1. Reduce the interest rates on loans or extend the due dates for a company’s liabilities

Pros:

Company was facing liquidity problems in 2008 mainly due to the recent acquisitions in the past
2 years. The SG&A expenses for Negma Laboratories were too high which may have resulted in
the negative operating profit in 2008. However, the chairman was pretty confident for this
“acquisition will allow Wockhardt to enjoy a pan-European presence, covering all the key
markets of Europe – namely Germany, UK, Ireland and now France” and “that the company had
proven track record of successful value-creation post acquisitions”. Negma was expected to
account for more than 60 percent of the company’s total revenues. Pinewood and Negma were
together expected to have revenues of INR12.1b in FY 2009.

Therefore, by renegotiating the loan terms and extending loan maturity dates the company
might be able to generate the benefits of its acquisition and meet its debt obligations once the
revenues start flowing in.

Cons:

The interest coverage ratio of Wockhardt in 2008 was 0.89 which was way too lower than 1.5,
which reflected the company’s inability to cover its interest and financial charge payments. With
Negma accounting for 60% of company’s revenues in the long run, the volatility of revenues also
increased. In case the liquidity problem did not resolve as an after math of the global financial
crisis in 2008, the problem could worsen up and the company might be forced towards
bankruptcy incase it failed to meet its debt obligations even after the debt restructuring.

2. Debt-for-equity swap, in which creditors agree to cancel a portion or all of the

outstanding debt in exchange for equity

Pros:

With a debt-to-equity ratio of 1.54, it was evident that Wockhardt wouldn’t be able to pay back
its debt even after a full liquidation as the debt amount was too larger than its equity.
Therefore, by swapping its shares to the long term convertible bond holders it could have an
agreement for cancelling a portion or all of its outstanding debt which could help solve the
company’s liquidity problem.

Cons:
 Debt-for-equity might help reduce the debt obligations however for a company as focused on
expanding as Wockhardt, this might mean losing control of the company’s shareholding forever
and not acquiring any of the related benefits in the future. All the past efforts would go in vain if
the creditors would acquire more control over the company.

Issue callable bonds

Pros:

Investors will be able to buy bonds at a discount so they would be more inclined towards
purchasing them and this might enable the company to meet some part of its debt in the short
term.

Cons:

Investors might not feel safe with the company having the right to call back the bonds any time
so the guarantee of their interest in investment may not be certain and this option might not
help resolve the company’s debt problems to any extent.

Recommended solution:
Of all the solutions, the option of restructuring debt by reducing the interest rates on loans or extending
the due dates for the company’s liabilities seems the most feasible and likely to work out in the best
interests of the shareholders. Based on the company’s past performance and global standing, it is
possible the terms could be renegotiated, and the company might be able to receive relief in the short
run. The greatest cost of corporate debt restructuring would be the time, effort, and money spent
negotiating the terms with creditors, banks, vendors, and authorities. The process might take several
months and entail multiple meetings. However, it would not result in the shareholders losing power as
they would in the case of a debt-for-equity swap or a full liquidation. Therefore, it appears the most
viable in Wockhardt’s case.

Corporate Debt Restructuring:

CDR is a process whereby a company or an organization which is struggling with repayment of loans to
its creditors reaches out to them to negotiate. While performing such negotiations, the struggling
organization has the following options:
 1. Conversion of Debt into Equity
2. Conversion of un-serviced interest to long term loan type
3. One-time settlement with the creditors under certain conditions
In case of Wockhardt Limited, it was under the threat of bankruptcy as it was unable to repay its loan,
the only option they had was go back and negotiate with their lenders. Another issue that Wockhardt
could potentially face is that they can be targeted by some other company for acquisition purposes.
Hence, in such cases, Corporate Debt Restructuring seems to be a better fit for Wockhardt as it would
ultimately protect the interest of stakeholders and shareholders of the company and also the lenders
and creditors. Hence, if done properly, could save Wockhardt.
Reserve Bank of India sponsored Corporate Debt Restructuring in 2002 whereby the main components
of CDR were:
1. CDR will remain to be a voluntary arrangement between a creditor and debtor or between
creditors under a certain agreement.
2. There would be legal mechanism under which CDR will be implemented and that was under ICA-
Inter Creditor Agreement.
3. The CDR mechanism to only apply on accounts for banks or organisations which have an
outstanding debt of 200Million INR or above
4. This mechanism to only apply on standard or substandard accounts with major priority given to
those struggling with non-performing assets
Corporate Debt Restructuring Structuring:
The corporate debt restructuring mechanism in India consists of 3 layers:
CDR Standing Forum - consisting of nominated persons from organizations or banks who then
participate in the Corporate Debt Restructuring. Their role is to guide and monitor the progress of
Corporate Debt Restructuring.
CDR Empowered Group – The CDR classifies cases under consideration under the following categories:
a. Class A- Borrowing Organizations affected by country’s or foreign macro-economic
conditions
b. Class B- Borrowing Organizations affected not only by its local or foreign macro-
economic conditions but do not possess enough resources and vision to support their
organization’s management system
c. Class C- Borrowing Organizations who went too ambitious in setting up their business
and kept diversifying themselves without really realizing if the diversification was
related or unrelated. The borrowing organizations also did not seek advice or took into
account lender’s interest while doing so.
 d. Class D- undisciplined financial borrowing companies
Corporate Debt Restructuring Cell: This CDR cell supports CDR Standing forum and CDR Empowered
Group to do their tasks and activities. Their job is to scrutinize all the information that both borrowers
and lenders give them. If CDR deems right, they can also prepare plan for the borrower under discussion
with the support of leads and outsiders.

Case of Wockhardt- Corporate Debt Restructuring:

As stated above, Corporate Debt Restructuring is a mechanism in which all lenders join together to
establish a deal which helps the borrower to achieve a balance. The options include increasing timeline
to return money or increasing interest rates etc. However, when CDR is put to action, it also limits
management power such that they are not able to take strategic, tactical or operational decisions for
the organizations.
Wockhardt should consider the following mechanism for implementation of CDR:
1. Split the interest rate into two parts: one of which to be paid on a month to month basis, and
the second one to convert into preference based share capital
2. Wockhardt will also request CDR to issue priority loan so that they are able to pay back to their
creditors, operationalize the business like normal and settle all the derivative losses that they
incurred within the course of such period.
3. As CDR suggests, Wockhardt should also consider divestment of non-related assets and come
out of non-core-business activities which will further help ease out cash.
4. CDR to not further allow any derivative transaction to limit itself from future losses.