Indian drug company completes CB buyback

Jubilant Organosys repurchases $48.3 million worth of convertible bonds and becomes the first Indian company to buy back CBs through a tender offer.

Indian pharmaceutical company Jubilant Organosys yesterday announced that it has repurchased $48.3 million worth of convertible bonds through a tender, bringing its outstanding debt down by approximately 20%. Following this transaction, its total remaining bonds outstanding are $193.2 million.
The buyback involved two bonds: a $75 million CB due in 2010 and a $200 million CB due in 2011. The combined face value, $275 million, had been reduced to about $240 million through conversions and small buybacks in the open market completed earlier. Following an auction process, the company said it would pay 85 cents on the dollar for the CBs due 2010, and 82 cents on the dollar for the 2011 CB.
Out of the $48.3 million bought back, $3 million came from the 2010 CB, leaving $49.6 million outstanding, and the remaining $45.3 million came from the 2011 CB, leaving $143.6 million outstanding. The company is not expected to continue buying back debt.
The tender was announced on February 10, and the bookbuilding was completed in the first few days. The outcome was announced after a settlement procedure that lasted around four days.

This is the first CB buyback in India to be done through a tender offer. One source close to the deal says that the total market buybacks for all Indian companies in the past three months is approximately $75 million. In other words, the Jubilant tender alone was worth more than half of all market buybacks in the last quarter.
"Tender offers are the right way to go. If you try to buy in the market, you only get very small amounts and it takes forever. This is the easiest and quickest way to buy back debt," says the source.

In December 2008 India's central bank, the Reserve Bank of India, issued new legislation permitting companies to buy back CBs as part of their liability management exercises. The rule change was prompted by a steep decline in the share prices of many companies which had issued convertible instruments. Indian companies can now buy back their CBs provided they use foreign exchange reserves held in India or overseas, or raise fresh external commercial borrowings. Companies can use rupee resources provided there is a minimum discount of 25% on the book value as per the RBI guidelines.

Jubilant Organosys is an integrated pharmaceuticals company present across the gamut of proprietary products, active pharmaceutical ingredients, contract manufacturing and healthcare. Its shares closed at Rs117 ($2.36) on the National Stock Exchange yesterday, and are down from a 52-week high of Rs400.

J.P. Morgan advised Jubilant on the buyback.

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