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S&P cuts Rolta’s long-term corporate credit rating

Standard and Poor’s (S&P) on Monday downgraded the long-term corporate credit rating on Rolta India to ‘B+’ from ‘BB-’ over expectations of an increase in its leverage and concerns that free operating cash flows will move into the negative zone in the next 12 months, reports fe Bureau in Mumbai.

Standard & Poor's
S&P said in its view, uncertainty is increasing over Rolta’s rising uncollected government receivables and capital expenditure for India’s defence and security related projects.(Reuters)

Standard and Poor’s (S&P) on Monday downgraded the long-term corporate credit rating on Rolta India to ‘B+’ from ‘BB-’ over expectations of an increase in its leverage and concerns that free operating cash flows will move into the negative zone in the next 12 months, reports fe Bureau in Mumbai.

The outlook is stable, the rating agency said in a media release. “We now expect Rolta to have negative free operating cash flows (FOCF) for fiscal 2016 and a ratio of funds from operations (FFO) to debt below 20% until fiscal 2017,” the release said.

The ratings agency has also downgraded the long-term issue rating on the senior unsecured notes of Rolta Americas and Rolta to ‘B+’ from ‘BB-’.

According to Rolta India’s annual report, the company’s consolidated net cash flow from operations stood at Rs439.08 crore in FY15 while in FY14 it stood at Rs592.67 crore. Bloomberg data show that at the end of September 2015 the company’s total debt stood at Rs5,371.90 crore.

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.

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 principal 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.

Bloomberg data showed that on Monday evening, the price of the 8.875% senior notes of Rolta Americas due in 2019 stood at 38.80 while the price of the 10.75% senior notes due 2018 stood at 47.657.

S&P said in its view, uncertainty is increasing over Rolta’s rising uncollected government receivables and capital expenditure for India’s defence and security related projects.

In April 2015, a California-based company named Glaucus Research Group had stated in its report that it suspect 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.

Glaucus again came out with a report which stated that its analysts “continue to value the junk bonds at the recovery value of Rolta’s offshore assets, which we estimate to be US$0.16 on the dollar”. Rolta had again denied the contents of the report.

The S&P release pointed out that although Rolta’s management expects delays in payments from Indian government agencies to be sorted out over the next six to 12 months, S&P believes the recovery is uncertain and will be gradual.

“We also believe that Rolta’s capital spending will remain uncertain, particularly till the company submits the prototype under the Indian defence battlefield management systems contract”, it stated.The Rolta India stock closed up 1.7% at Rs77.60 on the BSE.

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