Pharma firms lead bond charge abroad

Indian pharma companies seem to be leading the new charge of the Indian brigade in the overseas convertible bond (CB) market. In the first issue from the subcontinent in the last four months Wockhardt has raised $100 million. The offer was said to have been subscribed almost five times, merchant banking sources said.

The sources added that the CB market was completely closed to Indian paper in the last four months after some of the eight issues that hit the market around January-February performed dismally in the secondary market.

Sterling Biotech is in the market to raise $70 million through an Foreign Currency Convertible Bond (FCCB), of which it has concluded one tranche of $20 million.

Orchid Chemicals said it was revising its plans to raise $75 million through an FCCB issue. It had initially floated the plan two months back but had put it on the backburner because of lack of enthusiastic response. Now, things are looking up.

A senior Orchid executive told Business Standard: "The market conditions at that time were not favourable, hence we did not go ahead with it. We have, however, kept the option open and are weighing the proposal at this juncture."

Similarly, Sun Pharmaceuticals withdrew its plans to raise money overseas as it did not get a good response. "We withdrew our plans as we thought it was not the right time to go ahead with the issue. But we haven't decided as yet whether to go for the second attempt," said a company spokesperson.

The Wockhardt management declined to comment on the issue.

According to industry analysts, there was indeed a revival of interest in the domestic pharma industry, but the pricing of issues had to be right if the issues were to succeed.

Merchant banking sources added that the Wockhardt issue had set a new benchmark for pricing Indian paper. "When Indian Hotels floated its paper in the global market in early February, there was only one outstanding benchmark by Tata Engineering to price off. Now investors have nine benchmark deals to choose from to provide a reference for their deals," said a senior merchant banker.

They added that the Wockhardt deal received a good response because the pharma sector was among the most sought after by foreign investors.

The Wockhardt deal, the first since the May 2004 elections, consisted of an offer of five-year, zero coupon convertible bonds. JP Morgan was the sole bookrunner to the issue, which carried a greenshoe option of $10 million.

Sources said the issue received an enthusiastic response from European investors, who reportedly took 65 per cent of the offer. Offshore US companies took another 20 per cent (the issue was not sold to US investors), while Asian investors took 15 per cent. Merchant baking sources in Mumbai said the low Asian response was possibly because the transaction was launched after Asian trading hours on Friday.