Rolta India has sought a restructuring of its debt obligations from bond holders. A set of bonds — for an amount of $300 million — was issued by Rolta Americas LLC in July 2014 with a tenure of five years and a coupon rate of 8.875%. Another set — for an amount of $200 million — was issued by Rolta LLC in May 2013 and has a tenure of five years and a coupon rate of 10.75%. The company wants to issue a fresh set of five year notes in lieu of the outstanding bonds which mature in 2018 and 2019. On June 20, 2016, S&P global ratings lowered its long-term corporate credit rating on Rolta India to default. It has proposed to the ad hoc committee — comprising bond holders — that the existing senior notes be exchanged for new five-year notes with a principal amount of $500 million and with no accrued interest.
The new notes will have a 2% PIK (payment in kind) coupon. Conventionally, bond market players explain, PIK bonds mean “payment-in-kind” bonds wherein a bond issuer issues additional bonds for paying interest rather than paying cash. They were unable to confirm if this is how it would work for Rolta.
In June 2016, Rolta had indicated it had been unable to meet its obligations towards interest payments on bonds/ECB installment. In the It said it was incurring significant expenses on a very prestigious and time-bound defence project and had suffered unexpected delays in large payment collections. In a release, Rolta said its “current debt obligations maturities” include $39 million in FY17, $66 million in FY18, $192 million in FY19, $432 million in FY20 and $80 million in FY21.
Rolta has also proposed two options to return cash to note-holders prior to maturity. The first option states a right to redeem a portion of the principal amount using $75 million of cash paid to bondholders within the first 24 months under the notional reduction option. The second option states a right to exercise on a full redemption of the remaining principal and accrued/unpaid interest on the new notes prior to 42 months under the early redemption option. The schedules for both the options have been provided.
The company has also indicated an issue of contingent value rights (CVRs). Under Tranche 1 CVRs, the company proposes to issue up to $30 million of CVRs when there is a liquidity triggering event and if the notional reduction option is exercised. Under Tranche 2 CVRs, it proposes to issue up to $30 million of CVRs when there is a liquidity triggering event and if the notional reduction option and the early redemption option are both exercised.
It has said in the release it continues to negotiate with the ad hoc committee on the restructuring proposal but has not yet reached an agreement.
Rolta indicated in the release that it formed an exclusive consortium with Bharat Electronics to compete for The Battlefield Management System—a large value project for the Indian Army to digitalise its command, control and communication system.
“As a result, Rolta has invested heavily upfront, while facing prolonged working capital cycle and unexpected delays in collecting accounts receivables on other projects from 120 days to 190 days,” it said.
Rolta added that outstanding receivables due from government-related entities as of March 31, 2017, are expected to be collected in phases through to FY2020. Rolta stated that while
majority of the total expected cost in developing the prototype will eventually be reimbursed, the significant capital expenditure invested has impact on Rolta’s working capital cycle resulting in tight cashflow.