Wockhardt has announced that the corporate debt restructuring cell (CDR) has approved the corporate debt restructuring package on June 30, 2009. The company has accepted the CDR package which involves restructuring of debt, release of working capital and fresh priority debt pending divestment of non-core businesses.
These are the only details available from the company’s announcement to the stock exchanges. The company recently announced the sale of its animal drugs division to French company Vetoquinol. Wockhardt had Rs 1,414 crore of liabilities coming up for repayment during calendar 2009 and it would not have been able to do it from its internal resources. The debt comprises foreign currency convertible bonds (FCCB) and term loans. That’s why it had approached the CDR cell, which would have negotiated with the banks for rescheduling its liabilities.
Usually, a CDR package has several components. The lenders may waive penalties, accrued interest and also reschedule loans. They may also postpone interest payments or lower interest rates in the initial years. In return, they would ask the company to sell certain businesses or assets within an agreed time-frame. They would also ask it to commit to some financial targets and meet them. Companies operate under several restrictions, with the lenders keeping a close watch on its activities.
The promoter would have to bring in fresh guarantees and also either immediately bring in funds or over a period time. In addition, the lenders may also retain a right to convert their loans into equity, if the terms set under the CDR are not met. The loan conversion usually is done at a discount to the market price and may even lead to significant dilution
in the borrower’s equity capital.