Sun Pharma to Seek RBI Exemption for Organon Acquisition Remittances

Sun Pharma Seeks RBI Exemption for Organon Acquisition

Sun Pharma, the Indian pharmaceutical company, is planning to approach the Reserve Bank of India (RBI) to seek an exemption from foreign remittance rules for its $11.75-billion acquisition of US drugmaker Organon. According to people with direct knowledge of the matter, the company aims to refinance around $8 billion of Organon's debt by issuing corporate guarantees. However, these guarantees would have to be extended to foreign lenders, bringing the transaction under the purview of Overseas Direct Investment (ODI) rules.

Under RBI rules, any foreign guarantees issued by Indian companies worth over $1 billion require prior approval from the central bank. The pre-approval rule also applies to equity or debt investments made by Indian companies exceeding $1 billion. Despite multiple attempts, emails sent to Sun Pharma and RBI remained unanswered.

Sun Pharma's acquisition of Organon has been structured as a leveraged buyout, where the acquisition debt will be serviced entirely offshore at the acquisition vehicle, a 100% subsidiary of Sun Pharma. Once the subsidiary merges with Organon, Organon's own dollar cash flows will be used to service the debt. This structure limits the Indian parent's role to providing upfront equity financing and a corporate guarantee, which could require RBI approval since the combined financial commitment would exceed $1 billion.

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Sun Pharma announced the biggest acquisition ever by an Indian pharmaceutical company on Monday, agreeing to acquire US-listed Organon & Co. in an all-cash deal valued at an enterprise value of $11.75 billion. The transaction values Organon at $14 per share in cash. Sun Pharma has stated that the transaction will be financed through a mix of $2-2.5 billion of cash on its balance sheet and $9.25-9.75 billion of committed bank financing, which will be largely used to refinance Organon's debt.