Local Effect

New Delhi, Jan. 5: Daiichi Sankyo today said it planned to report an extraordinary loss of $3.9 billion (Rs 18,330 crore) on account of the decline in the share price of Ranbaxy, which it acquired last year for Rs 26,000 crore.

Japan’s No. 2 drug firm will write down the value of its 64 per cent stake in Ranbaxy, whose shares plunged nearly 66 per cent below the purchase price last year, and said it’s full-year net profit was likely to be lower.

Under Japanese accounting rules, companies are required to report valuation losses on their stockholdings if the share price falls 50 per cent or more.

Last year, Ranbaxy was one of the many overseas acquisitions by Japanese firms who leveraged their healthy reserves as well as the low interest rates in their home country to expand.

Soon after the deal with Daiichi, Ranbaxy ran into trouble when the US regulator launched an investigation into its manufacturing practices.

Ranbaxy’s shares plunged to Rs 252 at the close of 2008, far below the Rs 737 per share the Japanese group had paid for its stake.

“The company plans to record a valuation loss and a one-time write-down of goodwill on its investment in group subsidiary Ranbaxy Laboratories for the third-quarter ended December 31, 2008,” a Daiichi statement today said.

It said this would not affect its forecasts for net sales, operating income or cash flow.

“However, these items will have a significant negative impact on the company’s consolidated net income forecast,” Daiichi said.

The Japanese firm, however, said it remained convinced of the importance of Ranbaxy’s business to its future growth, and blamed the decline in the share price mainly on the global economic downturn.