Indian drug and medical services platform PharmEasy has breached its loan covenant terms with Goldman Sachs after failing to raise equity, the Economic Times reported on Thursday, citing people aware of the matter.
As per the terms, the company was supposed to raise equity of around Rs 1,000 crore, or about $120 million, linked to its burn rate velocity, within a year of taking the loan. It has failed to do that after trying for a year and postponed its initial public offering (IPO). However, PharmEasy has not defaulted on any of its payment obligations so far, according to the report.
The terms of the covenant agreement allow the US investment bank to potentially take over the entire company or its most profitable arm Thyrocare on account of the breach as all the assets of PharmEasy’s parent API Holdings have been used as security for the loan, people cited in the report said, adding that negotiations are currently going on to either restructure the debt or raise equity from existing or new investors and rectify the violation.
PharmEasy had borrowed $285 million, from Goldman Sachs in August last year to pay off an earlier debt it had incurred from Kotak Mahindra Bank to buy Thyrocare. It was a five-year loan attracting a 17-18% annual interest rate, according to the report.
The company has yet to respond to requests for comment by DealStreetAsia.
In August last year, the company had said it was planning to raise funds from existing shareholders via a rights issue after it withdrew the draft red herring prospectus (DRHP) to float its IPO to raise about Rs3,000-3,700 crore, citing “market conditions and strategic considerations”.
Subsequently, in November, the startup raised an undisclosed amount in debt from the growth-stage financing platform EvolutionX Debt Capital.
PharmEasy, backed by investors such as Temasek, B Capital, Prosus, Steadview Capital, and Nandan Nilekani’s Fundamentum Partnership among others, has raised a total investment of more than $1.12 billion across 16 funding rounds over the years since being launched in 2014. It was last valued at over $5 billion, when it raised funds in October 2021.
For the year ended 2022, PharmEasy’s annual losses widened 4.3 times to Rs 2,731 crore. Its cash outflows from operations also surged 3.2X to Rs 2,589 crore in FY22, according to Entrackr. Earlier this year, the company’s chief financial officer (CFO) Chebolu V Ram quit his role to join healthcare supply chain services firm Entero Healthcare.
Last month, DealStreetAsia exclusively reported that PharmEasy laid off employees as the startup struggles to raise funds amid a slowdown. While the total number of employees affected by the downsizing exercise could not be determined, sources said the company has been laying off employees across departments ranging from logistics, procurement, operations, sales, design and technology. An independent source said the number could be around 40% of the workforce, however, DealStreetAsia could not independently verify that.
PharmEasy’s cost-cutting moves come at a time when fund managers are seen to be increasingly moving away from the healthtech sector to clinch deals in the traditional healthcare space, including hospitals, amid macroeconomic headwinds. The trend has gathered steam as consumers are showing a clear preference for brick-and-mortar clinics over online consultations, which were at their peak during the pandemic years.
According to data collated by DealStreetAsia DATA VANTAGE, fundraising by healthtech startups in the country dropped a whopping 81% to $57.77 million in the first quarter of this year compared with the same period last year.