Wednesday, August 10

Grifols’ debt does not react to the injection of GIC

Grifols has achieved the approved regulatory authorities so that the Singapore sovereign wealth fund, GIC, inject 1,000 million dollars (884 million euros) to become a strategic investor in Biomat USA, a US subsidiary that until now was 100% owned by Grifols; but the operation does not seem to have the expected impact on the debt of the pharmaceutical company.

As explained Grifols at Announcement of its agreement with the Singaporean fund, the Catalan company will allocate all the funds from the investment of GIC to repay a debt that at the close of the first semester, when the company presented its latest accounts, amounted to 6,476 million euros, with a debt / ebitda ratio of 4.9 times.

This ratio, however, grew after Grifols resorted to a 2 billion bond issue to finance the purchase of the German company Biotest. The group has set itself the goal of reaching a ratio of 4.3 times, partly thanks to the injection of GIP, the sovereign wealth fund of Singapore, but the prospects for this goal to be met are grim.

Grifols affirmed in su announcement of the issuance of new bonds that it expects its leverage ratio to fall below 3.5x in 2024, which implies that the pharmaceutical company “does not expect to carry out any significant corporate operations or pay cash dividends” until then.

In order to reach this goal and deleverage his position, according to analysts, he will have to break a sweat. So much Moody’s What Standard & Poor’s and Fitch have lowered their expectations for Grifols, despite the fact that the bonds remain stable in the debt market.

Impacts on Grifols’ results for a year and a half

Moody’s it cut the company’s credit rating on September 23, from B1 to Ba3, as well as its bonds, and also gives it a negative evolution forecast.

According to calculations by the credit rating agency, the acquisition of Biotest the debt / ebitda ratio shot up to 6.8 times as of June 30, 2021, in a context in which it is expected that the effects of the pandemic will continue low levels of plasma collection and donations, which will impact in Grifols’ turnover and cash flow “in the next 12 or 18 months”.

Moody’s considers, therefore, that Grifols “It may not be able to reduce its leverage below 6x in the next 12 to 18 months, taking into account the effects of the pandemic, the need to integrate the various acquired companies and its active strategy of expanding its plasma collection.”

S&P offered a slightly kinder perspective on Grifols, but it also painted a scenario of high indebtedness for the company over the next two years, despite including the stimulus of GIC in your calculations. “We consider the transaction (by Biotest) to be transformative and aggressive from a financial policy point of view, given that adjusted leverage will likely remain above 5 times in the next two years,” the agency states.

Consequently, S&P downgraded Grifols from BB- to BB, indicating that the company’s operating performance will continue to act under pressure for the next six months, without significant room for improvement. S&P does concede that the acquisition of Biotest It will improve margins, the collection network of plasma centers, and the geographical diversity of the Catalan pharmaceutical company, but it expects these factors to materialize as of 2023.

Grifols It will therefore continue with a debt / ebitda ratio of 5.5 or 6 times during the next two years, according to S&P, which again sets 2023 as the year for the company to reduce its ratio below 5 times .

FitchFinally, it followed the path set by the other two agencies and assigned for the first time a BB- ​​rating of speculative grade to the debt of Grifols, qualifying as neutral the impact of GIC on it, “given the characteristics of its contractual terms, and the senior structure of the debt issued”.

For the agency, the leverage rate will be at a ratio of 5 times in 2024, above the target set by Grifols to pay dividends again from that year.