Orchid-Hospira $200m deal hits a roadblock

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The sale of Orchid Chemicals & Pharmaceuticals’ assets to Hospira of the US for $200 million has hit a roadblock because IDBI Bank has dragged the Chennai firm to court for not adhering to the covenants of a loan agreement.

According to industry officials, the bank has filed a petition in the Chennai High Court, seeking that Orchid fulfil its loan obligations before it sells the business. A senior IDBI Bank official declined comment, saying the matter was sub judice.

Orchid, with a debt burden of Rs 2,200 crore, singed a deal with Hospira in August to sell assets, including the active pharmaceutical ingredients (API) business and an R&D facility. The company then said the transaction would be completed by the third quarter.

IDBI Bank, which lent Rs 300 crore to Orchid, is not opposed to the deal. But it has not given the company a no-objection certificate. The petition, it is learnt, is to make the company repay the debt before the sale.

The bank asked the company to convert a part of the debt into equity after a repayment default.

The debt includes money lent as working capital.

“The company disputed the bank’s demand for a conversion of debt to equity. So the bank has taken the legal recourse,” said an industry official close aware of the developments.

Orchid wants to trim its debt by selling portions of its business. Asked if the deal would go through, the company said in an e-mail response: “The matter is sub judice but we are confident of resolving the issue soon and progressing with the Hospira deal.”

It added that the deal was subject to routine approvals and clearances from government agencies and the banking system.

Further, said the company, “the business transfer agreement… for sale and transfer of Orchid’s penicillin and penem API business and the API facility in Aurangabad together with an associated process R&D infrastructure in Chennai is progressing on schedule and would be closed as per the original time frame, subject to routine approvals and clearances from government agencies and the banking system.”

“Orchid plans to use a significant portion of the deal proceeds to pare down debt and the balance will be invested in new growth verticals. This business contributes to 23 per cent of Orchid’s revenue and 25 per cent of Ebitda, ” the company added.

In August, announcing the deal, Orchid had said nearly 830 employees would be transferred to Hospira.

The company reported a net loss of about Rs 20 crore in the quarter ended September 30 on an income of Rs 331 crore. The corresponding income in the previous year was about Rs 420 crore.

K Raghavendra Rao, Orchid’s CMD, said in a release after announcing the results that higher interest costs and the continuing liquidity pressure led to working capital constraints. These impacted revenue and profitability.

“This continuing pressure will lead to the current financial year witnessing a flat trend in terms of overall performance. We are working on a long-term growth strategy encompassing both the existing business verticals and forays into new product segments which should improve the revenue and margin profile next year onwards,” his statement added.


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