Torrent pharma in advance talks with CVC Capital to buyout Cipla promoters

Pharma maker Torrent Pharmaceuticals Ltd is in advanced discussions with European fund CVC Capital partners to raise at least $1.2-$1.5 billion as it gets ready to assemble a $7 billion acquisition package to acquire Cipla, according to a report by The Economic Times (ET).

Earlier, Torrent had reached out to several private equity (PE) funds, including Bain Capital, to secure the necessary funds to buyout the promoter family of Cipla. Sources were quoted as saying that Torrent is still holding talks with Bain on being a possible co-investor, but is likely to choose CVC.

Torrent is discussing with Brookfield to raise Rs 8,300-9,000 crore mezzanine debt. Torrent's founders, the Sudhir and Samir Mehta family, have a 71.25 per cent stake as promoters, which they plan to dilute to raise leverage. The Mehta family is seeking to make a non-disposable undertaking (NDU) using the shares as collateral for loans. 

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No final decision has been taken on the amount of funds. Torrent plans to close the funding by the end of September. According to sources, both CVC and Brookfield can raise their commitments to as much as $2.25 billion and $1.5 billion, respectively, if Torrent fails to raise funds from domestic shadow banks and mutual funds.

A source told ET that Torrent was hoping to raise a minimum of $750 million to as much as $2.25 billion through equity. The range is because of the uncertainty over how much of the open offer will be subscribed to.

Foreign banks like Standard Chartered Bank, Barclays, MUFG, Citi and Morgan Stanley are signing up for a senior debt facility of $3.8 billion for three years against the cash flows of Torrent and Cipla.

Nomura's Salon Mukherjee told ET that the deal will require large debt and equity dilution. With strong cash flows of Cipla and Torrent and a high promoter stake in Torrent Pharma, the deal can be completed. The Torrent promoters can retain 48-63 per cent in Torrent Pharma post-acquisition, he added.

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Cipla's promoters, the Hamied family, own 33.47 per cent of the firm. The current market value of Cipla has been around Rs 1 trillion.