Healthcare and pharmaceutical manufacturer Plethico Pharmaceuticals Ltd has approached the Reserve Bank of India to extend the deadline for the repayment of outstanding foreign currency convertible bonds worth $75 million, maturing in October 2012.
“The company has approached the RBI and will soon be allowed to extend the deadline. It needs time to arrange for the fund to repay the bondholders,” a person directly involved in the process said. According to him, the bondholders, who are not very enthusiastic about the equity price of the company, have agreed to extend the deadline to avoid a default.
In response to an e-mail query sent by VCCircle, a spokesperson of Plethico Pharma said, “Plethico will make disclosure as required in the public domain before giving any private information.”
The company has been grappling with a debt pile of Rs 1,091.48 crore as on December 2011, which doubled in one year from Rs 581.06 crore as on December 2010. “Plethico is in talks with domestic banks to raise money for the redemption,” another source with knowledge of company’s debt-raising plans said.
The company’s consolidated turnover as on December 2011 was Rs 420.45 crore and it booked a loss of Rs 65.28 crore in the same period.
In 2007, Plethico raised $75 million by issuing zero coupon FCCBs to investors for a period of five years. The company set the conversion price of the bonds at Rs 484 a share. At the close of trading on April 10, 2012, its stock price on the BSE was Rs 342 a share, up 1.56 per cent. The company has promised to pay a redemption premium of 145.9 per cent to the bondholders.
FCCBs are bonds with an equity element although they remain debt instruments as long as investors hold on to them. Investors can convert their holdings into equity when the share price touches the conversion price promised by the issuer. If this does not happen, the issuer needs to treat the bonds as debt and redeem those. Usually, the default risk is borne by the company that issues such bonds where it has to pay the bondholders on maturity.
During the bull run, Indian promoters did not treat the bonds as debt and did not provide for redemption, thinking that the stock markets will outperform and the rise in stock prices will result in conversions without straining the resources.
But with the stock markets nosediving from January 2008, stock prices of companies have considerably suffered – resulting into fewer conversions into equity shares as it makes no sense for bondholders to convert at a higher price than the market price.
Last year, Plethico tried restructuring the bond with new terms and conditions but could not arrive at a final plan with the bondholders.