Monday 29 May 2006                                                                 Economic Times, New Delhi

Morepen Laboratories, the Delhi-based ailing pharma company, plans to induct a financial partner and settle its outstanding debt to banks by paying 20-25% in cash, 5% through equity and 8% via preference capital. These proposals are part of the company’s corporate debt restructuring (CDR) programme to the banks.

The company’s CDR proposal also envisages a business restructuring plan under which it would focus on high-margin bulk and generic products and contract manufacturing. Morepen has a total bank loan outstanding of Rs 750 crore to about 43 banks and institutions.

Sources said the company is already in negotiations with a European hedge fund, which is a leading player in the takeover of distress assets, for the proposed financial partnership deal.

Though the name or the exact percentage of stake to be offered to the fund were not disclosed, the company’s CDR plan proposes to divest the stake through a mix of direct equity sale and FCCBs (foreign currency convertible bond).

When contacted, Morepen Lab CMD Sushil Suri admitted that the company is in negotiations with a European fund for a financial tie-up. He, however, refused to divulge details.

The Suris’ present holding of 33% stake in Morepen is likely to shrink significantly after induction of the financial partner. Sources said the promoters are also stipulated to infuse more funds into the company as part of the CDR programme. The company’s proposal on settlement of its bank loans through a mix of cash, equity and preference capital would mean that the banks will have to take a cut of over 60%. The banks and institutions to Morepen include PNB, BoB, Bank of India, IDBI Stress Asset Stabilisation Fund, Canara Bank as well as Exim Bank.

The company, which has been going through a financial crisis, has been defaulting on fixed deposits. Morepen has also proposed either a 50% one-time settlement of the principal amount or a 5-year repayment of the principal amount to its FD (fixed deposit) holders. It owes about Rs 150 crores to the CD holders.

If the 20-25% cash payment to the banks and 50% of principal amount to the FD holders are accepted, Morepen would require about Rs 260 crore. The company proposes to settle this by using the proceeds from the stake sale to the prospective financial partner. Once the core group sanctions the package, Morepen would be able to encash its $ 15 million GDR, which has been held up for the last 3 years.