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PharmEasy is in talks with at least two American PE firms for the debt bridge financing round

The company is taking the step as it deems current market conditions not favourable for its upcoming IPO worth INR 6,250 Cr

PharmEasy is raising the fund to pay off a part of its INR 2,494.7 Cr outstanding debt and for the working capital that it needs for the time being

E-pharmacy unicorn PharmEasy is in talks with private equity (PE) investors to raise debt to the tune of $250 Mn in a bridge financing round.

The company is taking the step as it deems current market conditions not favourable for its upcoming IPO worth INR 6,250 Cr, two people cited by Mint said.

“Pharmeasy has been engaged in talks with the credit arms of at least two American private equity firms… This is a bridge financing round to help the company fund its business till markets become more conducive to launch an IPO,” the report said citing sources. 

The digital healthcare platform is raising the fund to pay off certain loans and for the working capital that it needs for the time being. PharmEasy’s IPO was green-lit by SEBI in February 2022, however, it has opted to wait out the current market uncertainty.

PharmEasy had filed its draft red herring prospectus (DRHP) in November 2021.

Incidentally, the startup also plans to use a significant chunk of its IPO money towards paying off its debt. According to the DRHP filed by PharmEasy, it will use INR 1,929 Cr towards paying off outstanding debt, out of the INR 6,250 Cr it plans to raise with the IPO.

Out of the sanctioned credit of INR 2,629.6 Cr, the company has an outstanding debt of INR 2,494.7 Cr as of September 15.

This will help it reduce outstanding consolidated indebtedness, maintain a favourable debt-equity ratio on a consolidated basis and enable utilisation of the internal accruals of the company and its subsidiaries for further investment in business growth and expansion. 

The debt repayment would include INR 733 Cr repayment by the subsidiary Threpsi Solutions Pvt Ltd. Other subsidiaries, Aycon Graph Connect, Ascent Wellness & Pharma Solutions and Medlife International, would repay debt worth INR 56 Cr, INR 684 Cr and INR 270 Cr, respectively.

Apart from debt repayment, PharmEasy will utilise INR 1,259 Cr to fund organic growth initiatives. It will further use INR 1,500 Cr for inorganic growth through acquisitions and other strategic initiatives.

The loans that have been earmarked for repayment in the prospectus have a repayment schedule in August 2022, the document showed.

Founded in 2015 by Dharmil Sheth and Dr Dhaval Shah, PharmEasy merged with its investor entity, Ascent Health, to form API Holdings in 2019. Post the merger, Ascent Health founders Siddharth Shah, Hardik Dedhia, and Harsh Parekh joined PharmEasy as cofounders. 

Previous reports had also suggested that PharmEasy might reevaluate its public offering in the wake of increased market instability. 

The second person cited above noted that PharmEasy was not the only company looking to raise a debt bridge financing round.

“The current market volatility has impacted IPO launches for companies, and tech companies have also been hit on valuations. So companies that have near-term capital requirements are evaluating a debt round to avoid diluting equity at softer valuations ahead of their IPOs,” he said.

While these loans can be expensive – costing as much as 15% in dollar terms – in the current market scenario, these loans can be a lifeline for IPO-bound startups, the person added.