Ascendis shapes up as local player
Debt-ravaged health group Ascendis has struck a deal with lenders that involves it exchanging its European businesses to extinguish about €447m (R7.6bn) in debt, leaving the company with assets only in SA. The restructuring deal will involve the group giving up its crown jewel, Cyprusbased pharmaceutical maker Remedica, as well as other assets, such as Sun Wave Pharma in Romania.
Debt-ravaged health group Ascendis has struck a deal with lenders that involves it exchanging its European businesses to extinguish about €447m (R7.6bn) in debt, leaving the company with assets only in SA.
After mulling numerous options, including delisting, selling businesses “with a fire sale sign above the door”, or a rights issue, Ascendis believes its restructuring deal is by far the best option, CEO Mark Sardi said on Wednesday.
The group believes in the growth prospects for its remaining SA businesses, he said, and has little choice to sell its international operations, as it faces biannual interest payments exceeding its market value.
Ascendis, valued at about R400m on the JSE, said its board and management unanimously supported the restructuring deal, which would involve the group giving up its crown jewel, Cyprus-based pharmaceutical maker Remedica, as well as other assets, such as Sun Wave Pharma in Romania.
Ascendis’s current value is a far cry from the market capitalisation of about R14bn in 2016.
Europe contributed 55% of revenue in Ascendis’s half-year, but almost three-quarters of its operating profit, though the group will be selling parts of its SA businesses as well. Ascendis said it will update shareholders soon on how much of the business would be left.
Small Talk Daily’s Anthony Clark said the deal was probably the best that could be achieved, but while saving the company, far more seemed to be given away than originally anticipated.
Sardi said it was unlikely that the sale of Remedica alone would have extinguished debt, which was expected by some, having previously turned down offers that the company believed undervalued the business. The option of a separate sale of this business had been taken away from the group in January.
The group announced then that two of its creditors, Londonbased investment firm Blantyre Capital and L1 Health Group, preferred a recapitalisation to the sale of profitable assets with long-term value.
The lenders picked up more than three-quarters of its debt vehicle and were able to veto asset disposals.
Harry Smit, spokesperson of Ascendis Activist Investors (AAI), said the deal was “fairly reasonable”, and, while more may have been anticipated for the businesses, selling the assets individually would have involved additional costs.
“Unless there is some development, or someone comes up with €450m, we will recommend acceptance,” said Smit.
AAI had been formed to ensure transparency in restructuring talks, as well as provide leverage for Ascendis’s highly fragmented shareholder base.
AAI, representing about a quarter of issued capital, would continue its work, said Smit, including looking for input on the composition of the group’s board.
Ascendis had been grappling with a hefty debt burden as a result of international acquisitions, and restructured its debt in mid-2020. This was aimed at giving it space to try to complete asset sales, notably Remedica, which remains highly profitable.
HEAVY COST
This came at a heavy cost, however, and part of the restructuring was undertaken via a payment in kind, a type of high-risk loan that allows borrowers to pay interest with additional debt.
This cost the group an additional R280m in its six months to end-December, when finance costs more than doubled to R545m, overshadowing a strong performance by Remedica and parts of its SA operations. Net debt stood at R6.6bn at the end of December, up marginally from the end of June.
Should 75% of shareholders accept the plan, the group would be left with three divisions in SA, excluding parts of its medical
devices business, which has benefited from a pandemicinduced demand for ventilators. Should shareholders approve the deal, it is expected to be concluded by the end of August.
The group will be selling its Respiratory Care Africa business, which includes production of ventilators. Sardi said he believed demand in this business was “at the top of a cycle”, and it was a good time to sell.
It will also keep its consumer brands business, which includes skin creams, and its pharmaceutical business.
Sardi said the remaining assets had felt pressure from Covid-19, for example probiotics or medical equipment for surgeries, and looked set for recovery. The businesses were scalable, he said, and the group
would be looking to grow its distribution in other markets.
Clark said the group’s SA assets are interesting, but the future of the company is still in doubt, and the group may still look to break itself up and sell off its remaining businesses.
“Be under no illusion, we now have a micro-cap going forward, operating in a very competitive space, going up against some sizeable competition,” he said. The question is whether the group has the resources to go up against large players, such as Adcock Ingram, Clark said.
Sardi acknowledged the remaining businesses may not be enough to justify a listing, while they could also attract interest from buyers.
The debt-for-asset swap had been expected, and the group’s shares have been volatile this week, surging almost 42% on Monday. In trade on Wednesday, Ascendis’s shares rose as much as 14.3% to 88c an eightmonth high.
The group has still lost about 97% of its value since peaking at R30 in 2016.
ASCENDIS BELIEVES ITS RESTRUCTURING DEAL IS BY FAR THE BEST OPTION, CEO MARK SARDI SAYS
SHOULD 75% OF SHAREHOLDERS ACCEPT THE PLAN, THE GROUP WOULD BE LEFT WITH THREE DIVISIONS IN SA