Rolta India’s liquidity situation remains critical, says Fitch

Mumbai: The liquidity situation at Rolta India Ltd remains critical, said rating agency Fitch Ratings in a note on Thursday, a day after the grace period for the company to make good on overdue bond coupon payments expired.

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.

According to the note issued by Fitch, the payments had not been made until 15 June, when the grace period ended. Fitch 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 at Rolta India, said the company is taking several measures to fix the liquidity issues it is facing and added that the firm has credible credit record. He blamed the cash crunch on delayed payments from government owned companies.

“Due to delay in payments by the 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.

Shares of Rolta India have fallen 17.5% over the past one month. On Thursday, the company’s shares were trading at ₹ 64 per share, down 2.4% at 2.20pm.

In their note, the Fitch analysts said that Rolta would need to raise fresh capital but added that the market may not be willing to provide that capital.

“We believe Rolta is in discussion with its bankers to refinance or restructure its bank loans to improve liquidity. However, we have little visibility on these banks’ willingness to refinance the loans and expect any new lenders to seek very strict terms. We estimate Rolta may have about $100 million of unencumbered real-estate assets, including its Rolta Tower A and other related assets in Mumbai, which could be offered to banks as additional security to refinance its loans and to obtain additional funds,” said Fitch.