Veteran value investor and academic Shivanand Mankekar and ace Dalal Street investor Rakesh Jhunjhunwala-backed Orchid Chemicals & Pharmaceuticals is looking to raise up to Rs 1,000 crore ($222 million) through equity or convertible securities to redeem outstanding foreign currency convertible bonds (FCCBs) which are due in February, 2012.

The company said on Thursday that it was looking to raise the resources through issue of equity shares/FCCBs/any other form of securities, from domestic and/or overseas capital markets.

Given that the promoters’ holding in the company is just around 30 per cent (with around two-thirds of it pledged with financial institutions), they may not like to go after a straight $200 equity issue which will significantly dilute their own holding. So, it is likely that the firm will look at a mix of convertible instruments, possibly another FCCB, to see through the funding requirement.

Orchid Chemicals & Pharmaceuticals had raised money through zero coupon FCCB aggregating $175 million (with a greenshoe option of $25 million) in February, 2007, almost a year before it got embroiled in an apparent case of hostile takeover bid (See our earlier report:). Merrill Lynch International acted as the sole bookrunner to the issue. The bonds, listed on the Singapore Stock Exchange, are convertible at an initial conversion price of Rs 348.34.

This conversion price represented a premium of 30 per cent over the company’s share price when the bonds were issued. Orchid Chemicals’ share price dropped 4 per cent and was trading at Rs 282.4 at BSE on Thursday. This represents a discount of close to 19 per cent to the conversion price and it is unlikely that the FCCB holders will go for conversion at a higher price and the firm must prepare for redemption.

Incidentally, the Chennai-based company had used $130 million or bulk of the money raised through the FCCB in February, 2007, to repay the outstanding foreign loans. The rest was utilised to strengthen its core pharma business.

Last November, Orchid had also redeemed another tranche of FCCB aggregating to $17.4 million at 147 per cent of the principal amount as per the agreement in November, 2005.

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