Dhanuka Laboratories, the promoters of Orchid Pharma, have missed the deadline to mandatorily dilute 15 per cent stake in the Chennai-based pharmaceutical company to comply with SEBI’s minimum public shareholding (MPS) requirement.
Established in 1992 by K Raghavendra Rao, Orchid Pharma is an integrated pharmaceutical company with a presence in bulk drug manufacturing and formulations. The company has three manufacturing facilities in Chennai, with its active pharmaceutical ingredients (API) manufacturing unit at Alathur contributing more than 95 per cent of its total revenue.
In June 2019, the Chennai bench of the National Company Law Tribunal (NCLT) approved Gurgaon-based Dhanuka Laboratories’ ₹1,116-crore resolution plan to take over the debt-ridden Orchid Pharma. The resolution plan was subsequently contested in an appeals tribunal and the Supreme Court. After getting favourable rulings in these courts, Dhanuka Laboratories finally took control of Orchid Pharma in April 2020. After the restructuring process, Orchid Pharma shares were relisted on the bourses on November 3, 2020.
According to SEBI’s MPS requirement, companies are required to have a public shareholding of at least 25 per cent within three years of being listed. While the latest shareholding is not available, as of December 2022, Dhanuka Laboratories held 89.96 per cent stake in Orchid Pharma.
Qualified institutional placement
In December 2022, Orchid Pharma informed exchanges that its board had approved raising ₹500 crore through a qualified institutional placement (QIP) programme and had appointed investment banks Edelweiss Financial and JM Financial, to handle the share sale.
During a Q3 earnings call, Orchid Pharma MD Manish Dhanuka, said the QIP was brought in to meet the MPS requirement and that the company is confident of meeting the MPS requirement by March 2023. However, there have been no stock exchange filings on the QIP process or stake dilution since then.
A mail sent to Orchid Pharma and SEBI on this matter did not receive any response till the time of filing the story.
Dilution of promoter stake
Earlier, promoters could dilute their stake through a public issue, offer-for-sale (through primary and secondary markets), rights and bonus issues to public shareholders, and the QIP route. Earlier this year, SEBI allowed promoters more avenues to dilute their stake to meet the MPS norm, including offloading promoter stake through employee stock options (ESOP), or transfer of shares to an exchange traded fund (ETF) managed by a SEBI-registered mutual fund.
It is unclear whether Dhanuka Laboratories has sought an extension from SEBI to meet the MPS requirement and if the company will look at other avenues to bring down the promoter stake.
In December 2021, the Orchid Pharma board approved a draft Scheme of Amalgamation to merge the company with Dhanuka Laboratories. However, the companies have since withdrawn the merger proposal. During the third quarter earnings call, Manish Dhanuka said the intent of merging (synergic benefits) has not gone away and that the company will come to the board and to the shareholders for approving the merger once again after the QIP is over.
Meanwhile, Orchid Pharma stocks were trading at Rs 391.80 apiece intraday on the BSE, slightly lower than Wednesday’s closing price of Rs 392.90 per share.