Mumbai: Educomp Solutions Ltd, the kindergarten-to-standard 12 education provider, is seeking shareholders’ approval to restructure its outstanding foreign currency convertible bonds (FCCBs) worth $78.5 million (Rs 353 crore), the company told the stock exchanges on Monday.
It also plans to raise as much as $250 million through an institutional placement of shares. Educomp sold Rs 80 million in FCCBs in 2007 for five years, maturing in July 2012. According to a report compiled by Edelweiss Capital on Indian companies’ outstanding FCCBs, the effective conversion price promised by Educomp to its bondholders was Rs 832.4 a share, more than double its current stock price.
Educomp Solutions shares ended 4.6% lower at Rs 396.7 on the Bombay Stock Exchange on Monday.
While conversion of bonds into equity looked difficult, redemption was also unlikely considering the high level of debt the firm has on its books.
As on 31 March, its consolidated debt was Rs 1,437.34 crore compared with Rs 1,047.83 crore in fiscal 2010. This debt does not take into account the outstanding FCCBs and the redemption premium that the company needs to pay to the bondholders.
“The company will either restructure the bonds with the current bondholders or will look at issuing fresh FCCBs and repay the current bondholders,” Educomp said in its note to the shareholders seeking a postal ballot. It will have to alter the current terms and conditions of the bond, if it chooses to restructure it, Educomp said.
“If the company restructures the FCCBs, the conversion price has to be more market linked resulting into huge dilution at a later date,” an investment banker said on condition of anonymity as he is not authorized to speak to the media.
“The effective conversion price of the bonds is substantially north of the current market price and, hence, the conversion of bonds into equity looks unlikely. Also, with the high level of debt, substantial contingent liabilities coupled with several capital hungry businesses, Educomp seems to have few options other than restructuring of the bonds and raising fresh capital,” said Ankur Rudra, an education analyst withAmbit Capital Pvt. Ltd.