March 8, 2019 / 10:51 AM / 8 months ago

UPDATE 2-Shares in S.Africa's Aspen plunge on debt, slow sale proceeds

* Debt climbed as Aspen expanded from generics

* Infant formula deal now expected to close in May

* Debt levels still within creditor threshold (Adds historical debt, details)

By Nqobile Dludla

JOHANNESBURG, March 8 (Reuters) - Shares in Aspen Pharmacare lost almost a third of their value on Friday on concerns about ballooning debt at Africa’s biggest drugmaker and delays in the sale of an infant formula business that would help bring borrowing down.

The South African firm, which lost about 19.5 billion rand ($1.3 billion) of its market value, built up debt as it shifted from being a mainly generics business in a few countries into a multinational with specialist therapies, including for thrombosis.

Aspen’s debt stood at 54 billion rand ($3.7 billion) at the end of 2018, over six times more than in 2013 when it began buying everything from blood-clot treatment brands and a sterile plant from GlaxoSmithKline to anaesthetics rights from AstraZeneca and a factory in the Netherlands.

The stock dropped 29 percent to close at 100.66 rand, bringing losses since September to 63 percent. Friday’s fall was the stock’s biggest daily slide in more two than decades.

Investors worried that a deal to sell Aspen’s infant formula business, announced in September and worth 635 million euros ($713 million), had yet to close. Aspen had said it would be completed in the first quarter. It is due to close in May.

“The market doesn’t like the fact that the deal they announced some time ago is dragging out and taking some time to be finalised,” said Greg Katzenellenbogen, senior portfolio manager at Sanlam Private Wealth.

Aspen Deputy Chief Executive Gus Attridge said his company’s shares had tumbled since September because investors “are concerned by the high levels of debt we have.”

“So growth is fairly light or static at the moment and we have this high level of debt which means that we’re not in an acquisitive state,” he said.

The company’s net debt to core earnings, or EBITDA, stood at 4.4 times at the end of June, at the upper end of a threshold of 4.75 times negotiated with its creditors in December. It is also well above three times Aspen’s medium-term target.

Attridge said the ratio should fall to four times by the end of the financial year in June, helped by the sale of the baby milk formula business.

The price tag for the deal is also less than some investors had expected, which analysts said raised questions about whether the firm had been forced to sell in a hurry.

The company said in December it had struck a deal with U.S. firm Mylan to distribute a portfolio of prescription and over-the-counter drugs in Australia and New Zealand. That deal included an option for Mylan to buy the portfolio.

Aspen said on Friday it could reduce debt if Mylan exercised the purchase option, which it can from March. Proceeds from the deal would be about 188 million Australian dollars ($132 million).

($1 = 14.5301 rand)

($1 = 0.8904 euros)

($1 = 1.4203 Australian dollars)

Reporting by Nqobile Dludla Editing by Jane Merriman and Edmund Blair

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