Torrent Pharmaceuticals in talks with CVC Capital for funding Cipla purchase

Torrent is also in talks with Brookfield to raise up to Rs 9,000 crore mezzanine debt as share-backed promoter financing.

Torrent Pharmaceuticals Ltd is in advanced talks with CVC Capital Partners to form a consortium and raise a significant amount, likely between $1.2-1.5 billion, from the European buyout fund. This initiative is part of Torrent’s efforts to put together a substantial acquisition financing package of Rs 60,000 crore (approximately $7 billion) to acquire rival pharmaceutical company Cipla, a newspaper report has said.

Plus, this acquisition financing package is one of the largest in recent times, indicating the scale and significance of the potential deal. Earlier reports had mentioned Torrent’s approach to various private equity funds, including Bain Capital, for potential participation in the consortium. While discussions with Bain Capital are ongoing, CVC Capital Partners appears to be the likely lead partner for this initiative, the Economic Times reported on September 18.

Moneycontrol couldn't verify the report independently.

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Flexible approach

Torrent is exploring financing options to support its ambitious acquisition plans. Besides engaging with CVC Capital Partners for a significant investment, the company is also in discussions with Brookfield to raise mezzanine debt in the range of $1-1.2 billion (approximately Rs 8,300-9,000 crore). Torrent’s founders, the Sudhir and Samir Mehta family, hold 71.25 percent as promoters. The debt is intended to be structured as share-backed promoter financing, leveraging the high promoter ownership. This strategic move involves creating a non-disposable undertaking (NDU) where shares are used as collateral for loans, allowing the sale of stocks unlike traditional pledging of shares which restricts share sales, the report said.

The exact amount of funds has not been finalised yet. Torrent is actively exploring various avenues to secure funds and aims to conclude this process by the end of September before proceeding with a formal offer for the acquisition. Citing sources, the report said that both CVC and Brookfield have the capacity to increase their commitments up to $2.25 billion (approximately Rs 18,675 crore) and $1.5 billion (approximately Rs 12,450 crore), respectively, if Torrent's discussions with other capital sources, including domestic shadow banks and mutual funds, do not yield the intended results. This flexible approach underscores their determination to secure the necessary funds for the acquisition.

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“The company was looking at raising a minimum of $750 million to as much as $2.25 billion through equity. The range is due to the uncertainty over how much of the open offer will be subscribed to. But one needs to show committed financing during submission of a firm offer,” the daily quoted a person aware of the ongoing talks as saying. “If Bain and CVC both partner up with Torrent, then that will also influence the outflow.”

Several international banks, including Standard Chartered Bank, Barclays, MUFG (Mitsubishi UFJ Financial Group), Citi, and Morgan Stanley, are in parallel participating in the arrangement of a senior debt facility. This facility is expected to be in the range of Rs 30,000-32,000 crore (approximately $3.8 billion) and will have a tenure of three years.

It will be structured based on the cash flows generated by Torrent and Cipla, reflecting a significant financial arrangement associated with the acquisition plans.

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Salon Mukherjee of Nomura told the daily: “The acquisition will require large debt and equity dilution. With strong cash flows of Cipla and Torrent, and high promoter stake in Torrent Pharma, we think the deal can be consummated. The Torrent promoters can retain 48-63 percent in Torrent Pharma post acquisition. Assuming leverage of 3-5x FY25 EBITDA, we estimate Torrent could potentially raise approximately Rs 10,000-20,000 crore of debt. Assuming Rs 10,000-20,000 crore of infusion by Torrent’s promoters, it would require an additional Rs 20,000-40,000 crore equity infusion from PE investors and other investors.”