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May forex issue to court
July, 30th 2009

Wockhardt is talking tough with banks that have unilaterally terminated their forex contracts with the company ahead of schedule. These are large foreign banks, which have distanced themselves from the corporate debt restructuring (CDR) exercise. The company has sought legal opinion on the matter, said chairman Habil Khorakiwala. We hope that a mutually acceptable conclusion can be reached, but failing which we will take a defensive stand, he told the media after addressing shareholders at the companys AGM on Monday.

The banks cancelled the forex derivative contracts after Wockhardt defaulted. These banks are claiming Rs 489.52 crore from Wockhardt, which has not provided for this in its balance sheet. According to lawyers, Wockhardt could challenge the banks either in an Indian court or in a foreign court, based on what the company viewed as convenient and beneficial. If the forex contract was signed with a subsidiary or the parent company, either can challenge the bank, said a lawyer familiar with the development.

Mr Khorakiwala also said that Wockhardt would be divesting more of its non-core assets in 3-6 months. We will also consolidate our business. This, however, will not impact either our topline or bottomline. In fact, we see profitability improving, he said.

At present, over 70% of Wockhardts turnover is from its international operations and sales. The company is also believed to be looking for a buyer for its Irish facility Pinewood and its French subsidiary Negma Laboratories, though Mr Khorakiwala declined to comment on the issue.

Quashing speculations that it was looking at selling its hospital business, Mr Khorakiwala said that the company was in discussions with various players to sell a minority stake in Wockhardt Hospitals. We are in talks with a number of strategic investors, including Fortis Healthcare, for our hospital business. We will retain majority stake, he said. We are also looking for partners for our biotech business, but that will take 12-18 months, he added.

Wockhardts CDR process, involving the companys rupee debt, is under way, according to the company. Wockhardt has foreign currency convertible bonds (FCCBs) worth $110 million, which are due for conversion in October this year, would be bought back at a discount or restructured.

We are offering two options. One is an alternative structure to the FCCB holders and the other is to buy back the FCCBs at a discount. We have initiated talks with the people concerned about this. We will find this from the money raised from sale of non-core assets, Mr Khorakiwala said.

The key benefit of being admitted to the CDR cell, he added, was the additional priority loans that the company was getting for operational expenses. Wockhardt has external commercial borrowings worth $250 million and undertook LBO financing for both Pinewood and Negma worth approximately $200 million.

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