Pharmaceutical group Stada on March 4 sent an update to ease investor concerns over exposure to Russia, after its bonds and loans saw heavy losses last week due to the escalating conflict in Ukraine.
“A devaluation of the ruble and a decline of the Russian economy over the long term would certainly leave its mark on STADA,” the company said in a statement given to LCD yesterday, adding that its Russian business accounted for roughly 14% of consolidated sales in the first half of 2021.
The conflict has seen the company’s euro-denominated debt — which includes secured notes maturing 2024 and unsecured notes due 2025 — drop by roughly 5 and 13 points respectively in the past month, as investors increasingly looked to shed Russian risk from their portfolios. The group’s E+350 euro term loan due August 2026 is now quoted in a low-90s context, down almost 4 points on the month and at a 98.75/99.25 quote at the start of February.
STADA substantially increased its exposure to the country through its 2020 acquisition of the $660 million Russian brand portfolio from Takeda, and volatility in the Russian currency has already impacted the group’s performance in recent years, according to a J.P. Morgan report published today.
The Hesse, Germany-based firm however noted that pharmaceutical supplies are “specifically exempted from sanctions imposed by the European Union and several other countries,” and said that its Russian business operations (which are operated through a wholly-owned subsidiary) have so far seen “no major disruptions.”
Its Ukrainian operations however, which account for around 1% of revenue, have been temporarily suspended due the conflict, which will equate to a €2 million monthly cash outflow. The firm has said its “broad portfolio and geographic footprint” — which includes operations across Europe, the Middle East and Asia — “should help STADA to withstand such pressures.”
Analysts have also said the fast-moving situation means there is still considerable downside-risk potential for STADA’s Russian businesses. “We cannot rule out another round of sanctions which may impact pharmaceutical supplies to some extent, and increasing pressure on Stada from European consumers and authorities to interrupt or dispose of its activities in Russia,” Spread Research analysts wrote in a report published March 7. The report described STADA’s business update as “somewhat encouraging,” but offered an underweight bond recommendation given the ongoing uncertainty.
The Russian government today, for example, announced a temporary ban on exports of foreign medical equipment, although given STADA’s Russian business mostly offers products for the domestic market, this should not have a large impact on the company, one investor noted.
STADA has revealed a Ruble-denominated facility with a maturity of more than one year, but does not have urgent refinancing needs in euros. The group in September completed a €350 million-equivalent term loan add-on to replace its OpCo bonds maturing this year.
Sources estimate leverage at roughly 5x through the senior debt, while J.P. Morgan estimates that the removal of its Russian operations would take pro-forma net total leverage to the region of 7.5-8x, from 6.9x at present — based on the removal of 15% of group EBITDA and local financing. Stada will report annual results on March 22.