Pharmaceutical firm Wockhardt may be finding the conditions set by banks for easing the

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repayment terms of its Rs 3,454 crore debt tough. The lenders have decided to conduct a special audit of the all the funds raised by Wockhardt since April 1, 2007 and its end-use.

The lenders, member banks of the corporate debt restructuring (CDR) cell, have also asked Wockhardt to bring back funds invested in associate companies, which apparently are firms majority owned by the promoters, the Khorakiwala family.

According to the CDR package cleared by the lenders led by ICICI Bank, the promoters of Wockhardt are required to bring in additional funds into the company by way of equity or unsecured loans or a combination of both on terms and conditions acceptable to the executive group of the CDR cell.

The promoters own 73.64 per cent of Wockhardt.

Habil Khorakiwala, chairman of Wockhardt, has also offered an undertaking that he would always be the largest shareholder of the company and will always have management control of the company and that promoters’ shareholding shall not go below 28.45 million shares at time.

The CDR package requires Wockhardt to open a Trust & Retention account with ICICI Bank and route its entire cash flow through it. The company will have to submit estimated cash budget on a monthly basis well in advance and drawings would be permitted on the basis of the cash budget subject to verification of genuine requirement. After completion of the month’s operation, actual cash summary shall be submitted for comparison with the estimates, according to the restructuring package.

The lenders have valued all the assets of the company at Rs 4,269 crore. They would have a charge on assets worth Rs 3,454 crore.

Besides the fixed assets, the company has also pledged all the unencumbered share of the company to the lenders. Even those encumbered shares that are pledged, will be pledged back to the CDR lenders after they are released. All shares issued in future by the company to the promoters shall also be pledged to the CDR lenders.

However, the CDR package is in a limbo after foreign banks filed two winding up petitions on two grounds against the company in the Mumbai high court. The petition was filed by the Singapore-based DBS Bank on behalf of eight other foreign banks who have derivatives exposure in the company. DBS holds about 41 per cent of the company’s US $110 million zero-coupon foreign currency convertible bonds, which matured on October 25, 2009. The company has already defaulted on the FCCBs. The CDR cell has suggested that the FCCB investors take a 65 per cent cut on the exposure to Wockhardt.

The petition was admitted in the Mumbai High Court on November 7, which is expected to come up for hearing on November 27, 2009.