Sun Pharma issues detailed clarification on corporate governance allegations

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Sun Pharmaceutical Industries today announced a list of concrete steps to address investor concerns about certain relationships that it has with a couple of entities and loans allegedly extended to another firm.

Sun Pharma stock rose 4.3% on the clarification.

ADITYA MEDISALES

First, Sun Pharma will move the distribution activities of its India domestic formulations business from Aditya Medisales Ltd to a wholly owned subsidiary by the first quarter of FY 20, or Apr-Jun 2019.

ATLAS

On the more controversial issue of loans and advances to Atlas Global Trading, it issued a clarification.

“As at 31st March 2018, Sun Pharma’s consolidated balance sheet reflected a liability towards obligation of supplies to Atlas Global Trading (“Atlas”) amounting to Rs. 2,238 crores (~US$ 345 million).

“This liability was in respect of Atlas assuming the damages on account of Protonix patent litigation settlement entered by Sun Pharma which was disclosed in Sun Pharma’s Annual Report FY14 (Page No. 91, Note 48 (iii)),” it said.

Secondly, it said that some of the money it paid to Atlas was due to non-supply of drugs.

in September 2014, Sun Pharma’s Halol facility (Gujarat) was impacted by USFDA current good manufacturing policy issues “which were finally resolved in June 2018, after nearly 4 years.

“These cGMP non compliances resulted in supply constraints thereby, Sun Pharma was not able to adhere to the agreed supply schedule with Atlas. Sun Pharma, in FY18, has funded Atlas towards non-fulfilment of its supply obligations till the time such obligations are fulfilled as per the agreement. The said funding was included in Loans & Advances schedule of Sun Pharma’s FY18 consolidated balance sheet (Annual Report FY 18, Page 162, Note No. 7..”

It said that the two companies have now agreed in principle that Atlas will assign its rights and obligations arising from this contract to a wholly owned subsidiary of Sun Pharma.

“This assignment will ensure that the Loans & Advances given to Atlas will be settled. On conclusion of this transaction, in the consolidated balance sheet, this loan and the obligation will cease to exist as it gets squared up,” it said. ”

This transaction is expected to be concluded in FY19.

It wasn’t clear if Atlas will have to be financially compensated for this arrangement and if so, to what extent.

On the appointment of auditors in subsidiary companies, Sun Pharma sid it has initiated steps to induct its own auditor, SRBC & Co, as auditors of subsidiaries that are currently audited by Valia & Timbadia.

SURAKSHA REALTY

Finally, on allegations of loans and guarantees to Suraksha Realty Sun, it said that it “confirmed affirmatively that neither any loans nor guarantees have been given to Suraksha Realty.”

“Sun Pharma would like to dispel all falsehoods being spread about its financial dealings with Suraksha Realty. The company states unequivocally that it does not have any financial transactions with Suraksha Realty.”

Sun Pharma, founded by 2014 Dilip Shanghvi in 1983, acquired rival Ranbaxy in 2014 to become the largest pharma company in India as well as the largest Indian pharma company in US.

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