Aurobindo to use pref funds to retire debt

Aurobindo Pharma, the city-based Rs 1,250 crore bulk drugs major, is planning to use a significant portion of its proposed Rs 254 crore preferential issue to repay its high-cost debt.

"This offers better leverage for future growth by way of enhanced financial flexibility for an accelerated R&D program and other growth strategies," said K Nityananda Reddy, managing director, at the company's extraordinary general meeting (EGM) here today.

The company's consolidated debt at the end of fiscal 2002-03 stood at around Rs 690 crore as against tangible shareholder funds of Rs 470 crore. Its interest cost stood at Rs 48 crore for the year on consolidated basis.

The debt burden was owing to substantial investments that the company made in R&D, manufacturing restructuring, modernisation and also setting up new manufacturing facilities for entering into regulated markets.

The company is now vertically integrated and it has already started yielding benefits from this.

The EGM approved the resolution to issue 31 lakh equity shares of Rs 5 each at Rs 302 a share to Merlion India Fund through the preferential offer.

This is in addition to the earlier decision to offer 33 lakh equity shares of Rs 5 each to Citicorp Banking Corporation and 18 lakh equity shares of Rs 5 each to Chrys Capital at the same price through the preferential offer route.

After the above mentioned preferential issues, besides the issue of about 4 lakh equity shares to chairman P V Ramprasad Reddy, the total paid-up capital of Aurobindo will go up to Rs 28.40 crore. Of this, promoters will have 50.55 per cent stake.

"The equity placement is for both strategic and financial reasons to improve shareholder value in the long term. Getting well-recognised investors as strong shareholders in the company will greatly enhance the visibility and will provide a strong platform in its initiatives for the developed markets and also improve the shareholder value," Reddy said.