Biocon Biologics' Debt-Funded Viatris Deal Spooks Investors

Lack of Clarity

Biocon Biologics will raise $800 million in equity infusion from the parent Biocon.

The fresh fund-raising will come at a premium valuation, Mazumdar-Shaw said without divulging details.

In the last two years, Biocon Biologics has raised equity from True North, Tata Capital, ADQ, Goldman Sachs. Last year, it sold 15% stake to Serum Institute of India at a valuation of $4.9 billion. Its' valuation jumped to close to $8 billion based on the CCPS being issued to Viatris.

Still, Biocon will own close to 65% of its subsidiary on a fully diluted basis and will have bear a higher burden of the equity funding if all shareholders participate proportionately to their holding.

The parent plans to part-fund equity infusion via debt.

The fund-raising will be undertaken by Biocon and existing shareholders of Biocon Biologics, said Mazumdar-Shaw. And Biocon will use some its cash and raise some debt to participate in the equity round of Biocon Biologics, she said.

“Biocon is very comfortable with the debt taken on,” Mazumdar-Shaw said. And the company intends to repay it in five years, she said.

Mazumdar-Shaw, however, gave no details of debt financing except that it has commitments of $1.8 billion from lenders.

The new debt raising will require Biocon to provide financial support including corporate guarantees for the bank facilities. It has provided letter of comfort and corporate guarantees for its subsidiary existing bank facilities.

The IPO Option

One option that will be available to repay debt will be selling a stake in the biosimilar arm. Biocon Biologics is expected to file for an initial public offering in the next 18-24 months, said Mazumdar-Shaw.

The IPO could be a deleveraging exercise for the group. But Mazumdar-Shaw did not clarify if the IPO will be sufficient to reduce nearly $1.5 billion debt on the consolidated balance sheet of the parent.