PharmEasy Breaches Goldman Sachs Loan Covenant Of Raising $120 Mn

Epharmacy unicorn PharmEasy has reportedly breached its loan covenant terms with Goldman Sachs, within a year after raising high-cost debt from the US-based lender.

Per the loan terms, PharmEasy was supposed to raise an equity round of around INR 1,000 Cr ($120 Mn), linked to its burn rate. However, it has failed to raise the round after trying for a year and postponing its initial public offering (IPO).

The unicorn reportedly borrowed INR 2,280 Cr ($285 Mn), from Goldman Sachs in August 2022 to pay off an earlier debt it had incurred from Kotak Mahindra Bank to buy Thyrocare. The loan was said to be a five-year arrangement, attracting an annual interest rate of 17-18%.

PharmEasy hoped to pay off INR 2,000 Cr of its debt from the proposed IPO proceeds of INR 6,250 Cr. Since then, the online pharmacy has pushed its IPO plans to 2025.

Per an ET report, PharmEasy has yet to default on any of its payment obligations so far. The unicorn continues to service its high-cost debt, having paid back only $50 Mn so far.

The development comes just months after it was reported that PharmEasy had begun its rights issue to raise up to INR 750 Cr through convertible notes in October 2022. It did raise INR 650 Cr through the rights issue from existing investors Prosus Ventures, Temasek, TPG Growth and others.

During the year ended March 31, 2022, PharmEasy’s revenue from operations grew to INR 5,729 Cr from INR 2,235 Cr in FY21. Its losses were at INR 2,731 Cr in FY22 against INR 641 Cr in FY21.

For the uninitiated, loan covenants are independent agreements between a borrower and a lender, which outline things a borrower must or must not do. When a debtor violates one of these agreements, it is considered a technical default.

The terms of the covenant allow the US-based lender to potentially take over the whole company or its most profitable arm, Thyrocare. Per an ET report, all of the assets of PharmEasy’s parent company API Holdings have been used as security for the loan.

For now, the online pharmacy unicorn is said to be negotiating the terms of the loan, to either restructure the debt or raise equity funding.

However, the people close to PharmEasy were cited as saying that the unicorn should raise less than what was initially planned, as the burn rate has reduced significantly and the business is poised to turn around.

The online pharmacy unicorn has faced turbulent times recently, with investors Neuberger Berman and Janus Hendersen marking down its valuation to $2.8 Bn earlier this month, amid an ongoing valuation markdown season for Indian unicorns.