Huvepharma has announced intentions to go public in July on Euronext Amsterdam but called off its planned initial public offering (IPO) at the last moment, likely due to weaker than expected market interest.
"Our business is highly profitable and cash-generative and growing faster than its peers1, with its growth supported by demand for high-quality animal protein growing globally. Throughout the process we have much appreciated the intensive interaction with all the reputable institutional investors. It became evident to me from their feedback during the process that the Company's current and medium-term growth trajectory will be best supported by staying private for the time being, preserving the Group's agility and entrepreneurial culture. However, we might revisit the IPO project at a later date in the future," Kiril Domuschiev, CEO of Huvepharma, said in a statement on June 30.
Huvepharma said earlier that it planned to raise about 300 million euro in the initial public offering (IPO) in addition to a secondary issue offering in which the current shareholders, the Domuschiev brothers Kiril and Georgi, would have sold parts of their stake. That, however, did not happen. Bidding started last week, the deadline was June 30, and the results were to be announced on July 1.
The offering would have made Huvepharma the first company owned by Bulgarian shareholders to initiate an IPO on the pan-European stock market. The Domuschiev brothers' pharmaceutical business generates over 1 billion levs in revenues but also has a similar amount of debts.
What and why
Huvepharma sought a market valuation in the range of 3.6 - 4.5 billion euro on its debut in Amsterdam, according to the published prospectus. The allocation of stocks and their price was expected to be set on July 1, that's also when trade will begin for the secondary market.
The offer to investors was divided into two parts. One was a primary offering, seeking to raise 300 million euro for the company. Thus, up to 15 million new shares would have been issued, which would have produced the desired result even at the lower limit of the indicative price of 20 euro per share. However, if investor interest turned out bigger than expected and a higher price was reached (EUR 25.75 is the specified upper limit), fewer shares may have been issued.
A little over 11 million existing shares were to be offered separately. They are owned by the current sole shareholder, Advance Properties, in which Kiril Domuschiev and Georgi Domuschiev are partners with 50% each. For these shares, they could have received between 220 million and 285 million euro, depending on the price achieved. In case of strong interest, there was also an option to sell up to 3.47 million of their shares at the same price after the closing offers in July. Thus, the two brothers could have cashed in an additional 70 - 90 million euro.
Even with maximum subscription, the Domuschiev brothers would have retained full control of Huvepharma with a stake of at least 85%.
The company planned to use the raised funds to increase investment and repay part of existing liabilities. Huvepharma is registered in Bulgaria. The legal owner is the Dutch-registered Huvepharma Holdings BV, and the actual owners are the two Domuschiev brothers.
The capital increase and the listing of shares would have brought new shareholders into the group. Years ago, there was a foreign investor in the group - a Citi fund, but the Domuschiev brothers regained full control of the enterprise in 2014, using a syndicated loan. Huvepharma is active in developing, manufacturing and marketing human and veterinary medicines and nutrition products.
Huvepharma in 2020
In 2020, the group's liabilities increased by about 100 million euro, reaching half a billion euro. Huvepharma owes money to almost all major banks in Bulgaria, their Western parents, and some international institutions. The company also owes money to the European Investment Bank (EIB).
"The IPO will further accelerate the company's organic growth and the development of new products, and also increase the company's ability to acquire or license new products or technologies, reduce our leverage, as well as enable us to further increase our production capacity," Kiril Domuschiev said in the official announcement of the planned IPO published on Euronext in June. He also explained why the brothers chose Amsterdam: "The Netherlands is a leading European country in livestock development, and Amsterdam is the European trading venue with the highest daily turnover in the Eurozone."
In 2020, Huvepharma reported revenues of 588 million euro - an increase of 7% compared to a year earlier. EBITDA increased by 31% to 166.7 million euro. Currently, the company's net leverage ratio is 2.87. The company aims to reduce its net leverage ratio to 1.5 by the end of 2021 and maintain it at or below 2.
Ratings on credit watch
The IPO plan was well received by global rating agencies. Days before launch, Moody's (rating: Ba3) and S&P (BB) announced that they were putting Huvepharma under watch for a possible rating upgrade. Both agencies expected liabilities to decrease with the inflow of fresh capital.
Moody's sees as a challenge the company's relatively small size compared to competitors and the lack of diversification. For now, Moody's is keeping the rating unchanged despite the improved credit profile. S&P says that the decrease in liabilities will be offset by the plans for significant investments, reducing the expected free cash flow. That's why they also say that an increase in the rating is possible but only by one degree, to BB+.