BackRolta India says working on viable solution for bondholders after default
Rolta says it suffered unexpected delays in large payment collections, thereby leading to working capital stress over the past few months
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Mumbai: Rolta India Ltd on Friday said its management is working on a solution in the interest of all stakeholders after the software service provider failed to make interest payments on bonds.
Rolta confirmed that it had defaulted on interest payment on bonds and external commercial borrowings (ECB) instalments, and cited significant expenses “on a very prestigious and time-bound defence project", which required considerable ongoing investment, as the reason.
The company also said that it had suffered unexpected delays in large payment collections, thereby leading to working capital stress over the past few months. Rolta India has delayed a coupon payment of $6.8 million on a $127 million foreign currency bond issue due in 2018.
Typically, contracts with bond investors build in a 30-day grace period for coupon payments after which they can initiate actions such as asking the trustee to dip into the reserve account to make the payment. The grace period ended on 15 June.
“Rolta management is diligently working on addressing the overall situation in a comprehensive manner in consultation with its bankers and strategic advisors," Rolta India said in a statement.
“The aim is to arrive at an acceptable solution in the interest of all stakeholders and the company will be informing all stakeholders at the earliest possible opportunity and is committed to finding a viable resolution," Rolta said.
According to a note issued by Fitch Ratings on Thursday, analysts Nitin Soni and Steve Durose noted that the company’s liquidity situation is critical and added that the company may find it tough to raise the fresh capital that it needs.
“At end-March 2016, Rolta had a cash balance of $33 million—over half of which was restricted in debt reserve accounts, including $6.8 million in the bond interest reserve account. The rest was tied up by working capital requirements to run the day-to-day operations of the company. Fitch believes that Rolta needs at least $60 million to improve its liquidity in the very short term—including the missed coupon payment of $6.8 million, $35 million to pay bank loans that were due 31 March 2016 and $16 million for a coupon payment due on 24 July 2016 on Rolta Americas LLC’s 2019 bonds," the analysts said.
In an interview to Mint on 31 May, Kamal K. Singh, chairman and managing director of Rolta India, said the company is taking several measures to fix the liquidity issues it is facing and added that the firm has a credible credit record. He blamed the cash crunch on delayed payments from government-owned companies.
“Due to delay in payments by state-run organizations and defence public sector undertakings, the receivable cycle of the company has gone up to 190 days instead of 120 days. These delays have led to missing the payments. We will be now looking at several measures including discounting certain receivables or various other alternatives depending upon the market conditions," said Singh, without disclosing details of the options available.
The liquidity crunch and the delayed bond coupon payments have prompted rating agencies to downgrade the company. Fitch, for instance, has a “restricted default" rating on the company. Standard and Poor’s also lowered its rating on the company to “selective default" on 1 June.
On Thursday, Reuters reported that bondholders of Rolta India are forming a group to negotiate a debt restructuring and over 25% of the holders have agreed to join the group being organised by investment bank Houlihan Lokey and law firm Ropes & Gray.
On Friday, shares of Rolta India Ltd gained 0.63% to close at ₹ 64.35 apiece on the BSE, while the benchmark index, Sensex gained 0.38% to close at 26625.91 points.
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