S&P downgrades Rolta India, puts it on possible default watchlist

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Mumbai | Published: May 31, 2016 7:50:31 AM

Standard and Poor’s (S&P) on Monday placed Rolta India on watch negative on chances of possible default while downgrading the firm’s long-term corporate credit rating to CCC- from B+.

Standard and Poor’s (S&P) on Monday placed Rolta India on watch negative on chances of possible default while downgrading the firm’s long-term corporate credit rating to CCC- from B+. The agency attributed the downgrade to the company having missed its interest payment on the 10.75% 2018 unsecured notes. S&P also lowered the long-term issue rating on the senior unsecured notes of Rolta Americas LLC and Rolta LLC to CCC- from B+.

Bloomberg data show that at the end of September 2015 the firm’s total debt stood at R5,371.90 crore. In FY16, net profit fell 23% year-on-year to R189.11 crore on the back of R3,799.59 crore in revenues. The firm had an interest outgo of R476.74 for the year.

In a release, the agency observed it was uncertain about the company’s ability to meet interest payments.

The credit watch reflects a one-in-two likelihood S&P could lower the ratings in the next three months. There is uncertainty, the agency said, on whether the company will be able to make the coupon payment on its notes within the allowed grace period which ends on June 15.

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“However, we do not have any information on the company’s current liquidity position, which seems to have unexpectedly deteriorated,” the rating agency pointed out.

S&P believes the lack of proactive communication from the Rolta management on this unexpected development reflects a weaker efficacy of the company’s management and governance.

Last week, another credit agency, Fitch Ratings, had downgraded the rating of Rolta India to CC from B amid concerns over the short-term liquidity at the company.

Rolta Americas, a wholly-owned subsidiary of Rolta India, had issued bonds worth $300 million in July 2014 at a coupon rate of 8.875%. The bonds have a tenure of five years and are guaranteed by Rolta and its key subsidiaries.

Bloomberg data showed that on Monday, the price of the 8.875% senior notes of Rolta Americas due in 2019 stood at $30 while the price of the 10.75% senior notes due 2018 stood at $56.45. Rolta LLC, a wholly owned subsidiary of Rolta International, issued $200 million, 10.75% senior notes in May 2013. In October 2014, the company exchanged 36.67% of its 10.75% senior notes against 8.875% senior notes of Rolta Americas amounting to $73.34 million.

In December 2015, Rolta India stated that Rolta Americas had bought back $5.65 million in-principle out of the outstanding $373.345 million 8.875% senior notes due 2019 via open market repurchase transaction. “After this repurchase, the aggregate principal amount of bonds outstanding is $367.695 million,” it had said.

In April 2015, a California-based company named Glaucus Research Group had stated in its report that it suspected Rolta approached foreign bond markets because it was unable to borrow in India.

“Ultimately, we believe that bondholders and ratings agencies have failed to price in evidence that Rolta has materially misstated its financial performance and the risk that Rolta will default on its junk bonds. We value the bonds at the recovery value of the offshore assets, which we estimate to be $0.16 on the dollar,” it stated. Rolta had denied the contents published in the report.

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