Mumbai: Sun Pharmaceutical Industries’ plans to consolidate its subsidiaries have hit a roadblock after the National Company Law Tribunal (NCLT) rejected a proposal in which India’s biggest drug-maker sought to demerge an overseas unit.
The company had approached the Ahmedabad bench of NCLT for an approval to transfer investment undertakings from Sun Pharma to its Netherlands-based wholly-owned subsidiary. Sun Pharma now has the option to challenge the NCLT ruling in higher courts.
The decision was approved by the Sun Pharma board in May 2018.
The NCLT’s stand could also put a question mark on several other such restructuring proposals of India Inc. Many Indian companies were seeking consolidation to help raise funds in overseas subsidiaries.
Sun Pharma, however, said that the company was not looking to raise any funds.
“The purpose (of the demerger) is to consolidate the holding structure for Sun Pharma’s overseas, direct or indirect wholly-owned subsidiaries. The proposed demerger/consolidation plan is on hold and we are considering options,” a Sun Pharma spokesperson said.
Analysts believe there would be ramifications of this ruling across industries.
“The NCLT’s ruling to disallow a demerger will mean that the company will have to put its consolidation exercise on hold for now. It’s still not clear as to the exact reasons for this, but this will have huge implications on several Indian companies that have undertaken similar restructuring exercises,” said Girish Vanvari, founder of tax advisory firm Transaction Square.
Industry trackers say that several Indian companies have undertaken mergers and demergers with their foreign-held subsidiaries for several purposes. The reasons are as diverse as raising money and tax management.
Sun Pharma has been consolidating its businesses lately. In December 2018, the company completed the demerger of the specified business of Sun Pharma Global FZE (“Sun FZE”) and its merger into Sun Pharmaceutical Industries. The merger has had a significant impact on the standalone Ind-AS financial statements of the company, including revenue, profit, tax, reserves and comparative numbers.
India’s pharma and healthcare sector may see some stability in 2020, industry reports suggest. The next wave of growth could come from increasing exports to large and traditionally under-penetrated markets such as Japan, China, Africa, Indonesia, and Latin America.
Source: Economic Times