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New prescription for Ascendis

THE prognosis for ailing Steenberg-based health care conglomerate Ascendis has changed dramatically in the last month.

Readers will remember that Ascendis found itself straining under a mountain of debt that was incurred during a rapid acquisition programme.

Ascendis was built from scratch by Coast2Coast, a Cape Town-based private equity group. While early acquisition activity created earnings and cash flow momentum, the big leaps into offshore businesses lumbered the Ascendis balance sheet with a heap of debt. It only took one or two key operations to underperform before the balance sheet pressure started to tell…

To restore the balance sheet to full health, a decision was taken a few years ago to shed all non-core operations.

The critical part of the debt reduction operation was the sale of Cyprus-based pharmaceutical business Remedica, which – if speculation is to be believed – could have fetched between R4 billion and R6 billion.

Ascendis, last year, appeared to have a buyer after an unnamed entity made an unsolicited offer to purchase Remedica. But lengthy negotiations eventually came to nought, and Remedica was put back of the sales block.

The efforts to sell Remedica – or at least a part of Remedica – have dragged out frustratingly. Now a ‘Plan B’ is on the table – driven by a consortium of third-party financiers that are owed large loans by Ascendis.

Even though the divestment strategy – which includes smaller assets over and above Remedica – is a key term of the group’s Senior Facilities Agreement with the consortium of financiers, it seems consent from the majority of lenders was needed for any asset disposals.

So the big twist came in form of a letter sent to the Ascendis board last month from Blantyre Capital and L1 Health.

Blantyre is a London-based investment firm “on partnering with companies in relaunching good businesses with

temporary financial challenges.” Blantyre has been a member of the Ascendis lender consortium for some time.

L1 Health is a long-term investor in the health care sector.

The letter informed Ascendis that these two entities had – through funds managed and advised by Blantyre and L1 Health – increased their aggregated exposure as a consortium lender to more than one third of the debt exposure of all the group’s lenders.

As seen in many companies where high debt levels add vulnerability to the financial standing, Ascendis’ fate is now firmly in the hands of its biggest lenders.

Blantyre and L1 Health indicated that – with the exception of the disposal of certain non-core assets already subject to advanced negotiations – they do not believe the current divestment plan is in the best long-term interests Ascendis and its shareholders.

Blantyre and L1 Health Ascendis should rather be pursued to reduce debt to a sustainable level and to provide the funding necessary to maximise the long-term strategic value of the business.

Reading between the lines, it seems Remedica – which has been the star performer for Ascendis – will not be sold…at least just yet.

In the meantime Blanttre and L1 Health have asked the Ascendis board to negotiate a reorganisation of the group’s capital structure. Both Blantyre and L1 Health have indicated a willingness to invest further into Ascendis to achieve an improved capital structure.

CBN reckons what could be on the cards is a rights issue – which might well be tagged to Blantrye and L1 Health swopping all or part of their debt into Ascendis equity.

It could be an interesting few months ahead as shareholders that were banking on the Remedica sale have to re-calibrate their expectations for Ascendis.

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