On Monday, Sun Pharmaceutical Ltd held a conference call with analysts and investors where it sought to clarify the issues raised by a whistleblower (reported only in Moneylife
and later picked up by the Press Trust of India, which led to a 7.52% decline in the share price on Monday), as also by an earlier report by Macquarie Securities. Dilip Shanghvi made some introductory remarks and then took questions from those on the call.
However, Mr Shanghvi failed to address any of the issues effectively. Interestingly, one analyst from DSP Mutual Fund, seemed more keen on instigating Mr Shanghvi to sue Moneylife for defamation and invalidate the whistleblower, rather than to focus on his (the whistleblower’s) findings about Sun Pharma’s dealings. To his credit, Mr Shanghvi did not rise to the bait.
Here is a select list of some of the sharper questions posed and rather waffling and weak responses of Mr Shanghvi. He simply did not reply to some of the questions. To some others, all he said was he was “open to make changes,” a rather dubious response which suggests a lack of conviction behind many of the company’s decisions. This even led to a caller asking whether he now believes, with the help of hindsight, that these decisions were wrong. We have collated some questions and replies and leave the readers to judge for themselves.
(Disclaimer: the interactions have been edited.)
On Loans & Advances Given
Wesley John Wong: …Certain loans were made at market rates. Can you be more specific… on a year-on-year basis, there has been an increase from Rs670 million last year to Rs22.4 billion or almost $350 million. Can you explain the nature of this $350 million loan—who was it linked to and why?
Dilip Shanghvi: What is the question?
Wesley John Wong: The question is about the nature of the of the Rs22.4 billion worth of loans made to employees/others and published on page 162 of your annual report.
Dilip Shanghvi: Yeah. So, that's – that's what I said—that it's a business loan given to a non-related party which has increased significantly and I think, we've been interacting and talking to shareholders over some time… I mean…if there is a sense if this is not in the best interest of shareholders, then we will see what best we can do to reverse the transaction if that becomes necessary.
Wesley John Wong: That wasn't my question. My question is what is it? What is the nature of it, whom are you lending to?
Dilip Shanghvi: Yes, so I think this challenge which I face generally in responding to questions is that there is information which is material to the interest of business. So I can't share some materially important information…. So I am not able to give you more information about whom the money is given to; however, I understand the concern which you have and we will try and address this concern at the earliest.
Anubhav Aggarwal: …How did you take a call that investing almost $300 million plus…for more than two years is a better call? Was this investing…or charity or… what was the thought process there because you are not sharing how much of which industry you put money into, you're not sharing how much of. . . .
Dilip Shanghvi: …I'm not giving you specific information… I think I'm clarifying all other issues. As to the judgment about whether this money would have been better used somewhere else…we get a sense that if that is an important requirement for investors, then we will find a way to unwind this transaction.
Anubhav Aggarwal: So when you say market interest rate, can you give us some indication of what kind of yield you were generating, broader indicator, because in the annual report you mentioned 0% to 15%, isn’t that's a very broad range?
Dilip Shanghvi: But I think when you have conditionality in transactions, then it's difficult, because… certain things… are contingent, so if something doesn't happen, then it is lower; if something happens, then it will be higher.
Anubhav Aggarwal: Okay. Is this a listed pharma company or a non-listed pharma company?
Dilip Shanghvi: I'm not able to give further information…
Connection with Dharmesh Doshi and Jermyn Capital, Ketan Parekh associate
Sameer Baisiwala: …even if JPMorgan was the lead book manager, why have someone, Jermyn, as your co-book runner (on the 2004 foreign currency convertible bond (FCCB))? Is it true (what the) article suggests is as per SEBI's order of 2001, that Jermyn had connections with Ketan Parekh and Dharmesh Doshi?
Dilip Shanghvi: So, Sameer, I think I'm not able to respond because these are old sets of information, so we don't have this information with us… in 2004, when we raised the FCCB we were only a Rs1,100-crore company…in the past 14 years, regulatory framework, laws, expectations of transparency, corporate governance everything has changed significantly. So to apply them today with retrospective effect and revisit many of the decisions which the management… I think this will put an unreasonable burden on people…
On Aditya Medisales Being a Related Party
Nimish Mehta: Aditya Medisales, you mentioned that till FY 2017 it was not a part of the related group – related parties. Now, in FY 2018, has it become so…what changed between FY 2017 and FY 2018?
Dilip Shanghvi: …In 2017, we took shareholder approval in the AGM for continuing to get the distribution business through Aditya Medisales as a related party and that was also a transaction which was approved by more than 95% majority of the independent shareholders. Now if it is felt that that is not in the best interest of the shareholders because there are now some concerns that were missed at that point of time, we are open to make changes.
Nimish Mehta: … So before that merger happened, who was the promoter of Aditya Medisales?...All the promoters of Sun Pharma would be the promoters of Aditya Medisales too, so before that who was the promoter?
Dilip Shanghvi: No. I think that the equity was held in different investment companies and these investment companies got consolidated.
Anmol Ganjoo: So, the logical conclusion would be that, of course, from the benefit of hindsight that, indeed some of these transactions were best avoided.
Dilip Shanghvi: No. That's not what I'm saying. I am saying that I will – we will discuss with investors and try and explain to them as to what we think is the benefit. And then if they still feel that this is not something which they feel is useful, then maybe look at what are the options for us to revert to a more commonly acceptable operational process.
The most interesting question from our perspective came from Aditya Khemka of DSP Mutual Fund who seemed to be keen for Sun to file a defamation case against us:
Aditya Khemka: …clearly there is a media company which has put the press out. Can you sort of go after them to seek more clarification about why they wrote in your name, maybe a defamation lawsuit?
Dilip Shanghvi: I mean, in this sense that I think my first and important priority is to address the concerns of the investors, as well as work towards re-establishing the credibility that we have historically enjoyed as a company with high levels of corporate governance norms. That I think is my priority.