Cipla share price rises on $12m debt sale talks
Tuesday February 02 2021
Cipla Quality Chemicals stock rose by 17.8 percent in January 2021. PHOTO | FILE
Ugandan pharmaceutical firm Cipla Quality Chemicals shares have gone up 17.8 percent, to an average of Ush112 (0.030) per unit in the first three weeks of January, from Ush95 ($0.025) in July-August 2020.
Investment advisors attribute the rise of the share price to the drug maker’s remodelling of its business and planned discount of the Zambia debt.
Cipla is negotiating with the Pan-African Trade and Development Bank (TDB) to buy the $12 million Zambia debt.
When concluded, the credit-to-cash deal will give Cipla immediate cash flow, and cushion the company’s profits and the shareholder’s net worth from further erosion.
“Negotiations are in early stages,” said Nevin Bradford, the Cipla CEO. He declined to give further details.
According to the International Monetary Fund, Zambia is struggling financially. On November 3, the country became the first African country to default on its international debt since the start of the pandemic.
The delay by the Zambian authorities to settle the outstanding Ush48 billion ($13 million) led to Cipla impairing Ush32 billion ($8.6 million) on its income statement.
However, the stock is still trading below its initial public offering price (IPO) of Ush2,56.5 ($0.069) per share in September 2018.
This means investors who bought shares shortly after the IPO have lost 56.3 percent value of their capital.
In the first six months to June 30, 2020, Cipla fully impaired the Ush42.9 billion ($11.5 million) Zambia debt, eating into the shareholders capital.
The company reported an additional impairment allowance of Ush9.1 billion ($2.4 million) in the same period.
The company is also tapping into new market opportunities within the EAC and the rest of Africa.
The region has a combined pharmaceutical market of $4 billion, with most of it spent on essential medicines, particularly antibiotics, antimalarials, anthelmintics, disinfectants, analgesics and anti-retroviral medicines.
Francis Gajja, a researcher at Equity Brokerage firm said pharma stocks have the potential to reap solid long-term returns that outperform the broader market.
These returns are possible because pharmaceutical companies develop products people need — drugs that treat or prevent diseases and vaccines for immunisation against bacterial and viral infections — and continually invest in research and development to launch new drugs.