Shares in Spanish drugmaker Grifols tumble on Fitch, S&P downgrades

By Thomson Reuters Mar 14, 2024 | 9:19 AM

(Reuters) -Shares in Grifols fell more than 9% on Thursday after credit rating agencies Fitch and S&P downgraded their ratings for the beleaguered Spanish drugmaker, citing lower than expected free cash flow generation and refinancing risks.

The company’s shares were down 9.1% at 1400 GMT, the worst performers in Spain’s blue-chip index, which was down 0.28%.

Fitch said its downgrade to “B+” from “BB-“, both in the so-called speculative part of the rating scale, reflected Grifols’ “slower-than-expected deleveraging, caused by significantly lower free cash flow generation in 2023 and 2024 than previously forecast by Fitch”.

However, the agency added that a successful sale of Grifols’ 20% stake in Shanghai RAAS, which is pending regulatory approval and the company expects to close in the first half of 2024, “would help mitigate refinancing pressure”.

Meanwhile, S&P lowered its rating to “B” from “B+” as it also highlighted the Spanish company’s weaker cash flow generation and higher refinancing risks.

Grifols said in a statement that the downgrades came “in light of 2025 maturities” that it expected to address in the first half of this year to improve leverage levels, adding that it would continue to conduct business as usual.

“Rating agencies typically adopt a conservative stance without considering the current status of the efforts and advancements that Grifols is making to address such debt,” it said.

On March 1, Grifols announced a new operating cash flow generation target for 2024, expecting it to more than double to 900 million euros ($984 million) before one-off items this year.

The company is also seeking to generate between 2 billion and 2.5 billion euros in free cash flow before dividends from 2025 to 2027. In 2023 it posted negative free cash flow for the second straight year.

Since early January, a report by short-seller fund Gotham City Research that questioned Grifols’ accounting and debt ratio has cast doubts about the company’s business and wiped off billions of euros in market value.

On March 8, Grifols received a boost when auditor KPMG approved the company’s 2023 results without modifying its reported profit and debt ratio.

Neither Fitch nor S&P made any reference to Gotham City’s report.

($1 = 0.9142 euros)

(Reporting by Tiago Brandao and David Latona; Editing by Mark Potter)