Sun Pharma takes steps to ease governance concerns; shares rally

Reuters
A guard walks inside the office of Sun Pharmaceutical Industries Ltd in Mumbai, India, November 13, 2018. REUTERS/Francis Mascarenhas/Files

By Tanvi Mehta

(Reuters) - India's top drugmaker by market value Sun Pharmaceutical Industries announced on Tuesday a new local distributor and other measures in a bid to ease investor concerns over its corporate governance, sending its shares up more than 6 percent.

The move comes after its shares tumbled last week following media reports about a complaint by a whistleblower to regulators relating to certain transactions involving the company and an executive director.

The whistleblower had alleged that Sun Pharma's distributor Aditya Medisales Ltd had transactions worth more than 58 billion rupees ($814 million) with Suraksha Realty, controlled by the executive director, Sudhir Valia, a report by Moneylife magazine said.

The report, the second in over a month, alleged that the distributor has been used to fund companies owned by the executive director, analyst reports said. Sun Pharma said it had not received the complaint and was not privy to contents of the document.

Reuters was unable to review the complaint.

Sun Pharma said on Tuesday it replaced Aditya Medisales with its wholly owned unit as the new distributor for its domestic formulations business. It also said it would appoint new auditors of its subsidiaries, and agreed to settle $345 million in overdue loan stemming from patent litigation.

It denied a media report that it had provided payment guarantees to Suraksha Realty, adding that it does not have any financial deals with the Mumbai-based company.

The statement helped send Sun Pharma shares up as much as 6.3 percent on Tuesday, but analysts cautioned governance issues may continue to keep pressure on its shares.

"AML does borrow and lend to related parties. There are allegations... implying additional wealth transfer from Sun Pharma," Jefferies said in a note on Monday, referring to Aditya Medisales.

"We see little evidence of this in Sun's financials... but corp governance remains an overhang."

Shares of Sun Pharma, which had a market value of $13.4 billion as of Monday's close, have shed over 24 percent since Nov. 22, around the time when corporate governance concerns began to crop up.

($1 = 71.2260 Indian rupees)

(Reporting by Tanvi Mehta in Bengaluru; Editing by Miyoung Kim and Muralikumar Anantharaman)