Grifols SA, a Spanish blood plasma firm, experienced a significant increase in its bond yield over the week, marking a noteworthy surge following a critical report by short seller Gotham City Research LLC that scrutinized the company's financial reporting.
The bond under scrutiny is the GRFSM 3.200 01-May-2025 EUR (XS1598757760), which experienced a substantial shift in its yield, surging by 278 basis points to reach 7.5% within a week. The movement has triggered concerns in the financial markets and led to a notable decline in Grifols' market value.
The surge in yield is attributed to a scathing report by Gotham City Research LLC, a short-selling hedge fund. The report, released on Tuesday, criticized Grifols' financial reporting, alleging that the company artificially reduced leverage by consolidating earnings of units it doesn't control and overstated profit. Grifols, a Spanish drugmaker specializing in human plasma-based medicines, saw its stock tumble by 33% in Madrid, with bonds also experiencing a significant decline.
Grifols vehemently rejected the allegations, stating that Gotham's report contained "false information and speculations." The company insisted that related party transactions and disclosures reported by Gotham have been fully disclosed and audited since 2018. Analysts expressed skepticism about the report, with some noting that the allegations weren't new and that they had been adjusting the company's leverage ratios for years.
In response to the market turmoil, Grifols is reportedly planning to repay its €1.84 billion ($2 billion) of bonds due in 2025. The company intends to utilize its existing cash and funds from selling a stake in Shanghai RAAS Blood Products Co. to manage the repayment. However, Grifols declined to comment on these repayment plans.
The Spanish securities regulator, CNMV, is currently analyzing the Gotham report and is in contact with Grifols for additional data. Banco Santander SA analyst Jaime Escribano countered concerns about Grifols's finances, stating that there is no misleading information they were not aware of and the stake sale in Shanghai RAAS Blood Products should support the company's finances.
Despite the significant drop in Grifols' shares, analysts from Banco Sabadell emphasized that they would not alter their valuation until it was certain that mistakes had been made. The company, facing two large debt maturities in the first half of 2025, is confident that Gotham's allegations should not affect its financing needs, with the 2025 maturities covered by the recent Chinese stake sale.
The company's senior unsecured debt is rated as follows: 'B+' by Fitch, 'B-' by S&P, and 'Caa1' by Moody's.
Grifols SA, headquartered in Spain, specializes in the manufacturing of biopharmaceuticals. The company operates across four main business segments: Bioscience, Hospital, Diagnostic, and Raw Materials. The Bioscience division is dedicated to researching, developing, manufacturing, and marketing products derived from human plasma for therapeutic purposes. The Hospital division provides non-biological pharmaceutical products and medical supplies to hospital pharmacies. The Diagnostic division supplies clinical analysis and laboratory testing tools to laboratories, hospitals, and blood banks. The Raw Materials division encompasses the sale of intermediate biological products and manufacturing services to third parties. Grifols SA has production facilities in various locations, including Spain, the United States, Mexico, and Australia, and controls several subsidiaries. Grifols SA has a market capitalization of €8.71 billion as of January 8, 2024.