MD Dilip Shanghvi assures investors that at no point of time Sun Pharma's minority shareholders were disadvantaged in transactions with Aditya Medisales
Sun Pharma, India's largest drug maker on February 12 said it it had responded to the two queries raised by stock market regulator the Securities and Exchange Board of India (SEBI) related to 2004 foreign currency convertible bonds (FCCB) issuance and about Sun's business with Aditya Medisales (AML).
"While we do not have the access to the whistleblower compliant, we received information request from SEBI related to our 2004 FCCB issuance and also transaction with Aditya Medisales," said Dilip Shanghvi, MD of Sun Pharma in the investor call.
"We responded to the queries," Shanghvi said.
Shanghvi assured investors that at no point of time Sun Pharma's minority shareholders have been disadvantaged in transactions with Aditya Medisales.
"AML financials are available in the public domain. It earns an EBITDA margin of only 1.4 percent from Sun Pharma for distributing its products in India. And its net margins are less than 0.4 percent, which actually includes significant dividend income which it receives for its equity holding in Sun Pharma. So net margin is lower than 0.4. Given the low margins and size of Sun Pharma domestic formulation business, AML is working on extremely tight working capital necessitating Sun Pharma to fund AML time to time for which interest was always covered at arms length," Shanghvi said.
He further added that the company is the in the process of transitioning the distribution of India formulation business to a 100 percent Sun's subsidiary by Q1FY20.
Shanghvi also reiterated that Sun Pharma will be unwinding a loan transaction of Rs 2,238 crore entered with a third-party called Atlas Global Trading.
Shanghvi said Sun Pharma entered into transaction with Atlas to "conserve cash so as to retain flexibility of undertaking mergers and acquisitions in the specialty space."
The company's FY18 annual report doesn't mention the name of Atlas Global Trading. According to an old Credit Suisse report, Atlas is a company of SuGandh Group, which is into trading of Basmati rice. Another company from the SuGandh Group, SuGandh Management Consultancy, was a related party of Sun Pharma, an enterprise under significant influence of key management personnel or their relatives till February 28, 2013.
Sun Pharma said it had given a loan of $400 million in FY15 which was repaid, later it gave another loan $300 million in FY18 to Atlas as the drug maker failed to fulfill the supply commitments due to GMP issues at Halol.
Shanghvi said the supply contract will be assigned to wholly owned subsidiary, and $300 million will squared-off on the balance sheet.
Sun Pharma's corporate governance practices are under scanner on reports of a whistle-blower complaint to SEBI alleging transactions over Rs 5,800 crore between AML and Suraksha Realty, out of the money generated from the publicly-listed company.
Moneycontrol was unable to independently review the whistle-blower complaint. The report alleged the Sun Pharma's payment to Aditya Medisales was transferred to the promoter and group companies between 2014 and 2017.
In another complaint last year the whistle blower is said to have alleged irregularities involved two or three major rounds of foreign currency convertible bonds (FCCBs) issues by Sun Pharma during 2002-2007, which was managed by Jermyn Capital LLC.Jermyn Capital was alleged to be having links with stock market manipulators Dharmesh Doshi and Ketan Parekh.