Dec 04, 2012 05:27 PM IST | Source: CNBC-TV18

NCD issue: Thomas Cook aims broaden debt maturity profile

Thomas Cook India will raise Rs 200 crore by issuing non-convertible debentures (NCDs) on a private placement basis. Its promoter Fairfax has USD 30 billion invested worldwide and with the might of this new promoter the company is exuding confidence like never before.

Thomas Cook India (TCIL) will raise Rs 200 crore by issuing non-convertible debentures (NCDs) on a private placement basis. Speaking to CNBC-TV18 about the rationale behind this move, managing director Madhavan Menon said that the company is looking to broaden the maturity profile of its debt.

Currently, the total debt of the company is between Rs 150 crore to Rs 200 crore.

"We primarily depend on commercial paper to fund our requirements. Given the seasonal nature of our business, we thought it would be worthwhile broadening the maturity profile and therefore reduce the impact of interest rates spikes or drops witnessed over a period of time," he elaborated.

In May this year Thomas Cook Group plc, UK had sold off its entire 77 percent holding in TCIL for Rs 817.4 crore to Canada based Fairfax Financial Holdings, which later on made an open offer to fully acquire TCIL.

Below is an edited transcript of Madhavan Menon's interview on CNBC-TV18

Q: Take us through the details of this non-convertible debenture (NCD) issue, how much are you looking to raise, how will you utilize these funds?

A: This was an enabling resolution. We are at a preliminary stage of this process and need to go out and get shareholder approval. A variety of other steps need to be taken. The objective of this is to broaden our maturity profile. We primarily depend on commercial paper to fund our requirements.

Given the seasonal nature of our business, we thought it would be worthwhile broadening the maturity profile and therefore reduce the impact of interest rates spikes or drops witnessed over a period of time.

We expect this process to take couple of months. Once it is done, we hope to raise around Rs 100 crore to start with and then figure out the next step.

Q: What would be the nature of this paper, how many years? What is the maturity change and what will be the yield you expect? Would it be secured or unsecured paper?

A: It is early to answer these questions, while we have been talking to investment bankers we need to take decisions. From a maturity perspective, a five year paper with payments in the third-fourth and fifth would be ideal in terms of availability in the market.

In terms of security and unsecured, we would like to go for unsecured paper, but we will have to look at the rate profiles and understand the differences before we take any decision.

Q: What is your total debt?

A: Depending on the season somewhere between Rs 150 crore to Rs 200 crore.

Q: How are business operations doing in the domestic segment as well as rest of the world?

A: The leisure holiday segment relating to outbound travel continues to be buoyant. We are witnessing bookings both for the current winter season which is December, has grown over the pervious year. Now, we are advancing for summer of 2013. The initial bookings are good. For summer 2013, it is a bit early to predict where the growth is but my estimation says, we will either match the current year’s growth rates or maybe slightly higher.

Q: Have your promoters pledged their shares with Royal Bank of Scotland (RBS)? Are your loans up for renegotiation with bankers?

A: In August, we had a change in shareholder. So the erstwhile shareholders of the Thomas Cook Group had indeed pledged their shares to RBS but those shares were freed to facilitate the sale to the Fairfax Financial Holdings Group. Therefore, now our shares are held by the company called Fairbridge Capital which is wholly owned subsidiary of Fairfax and those shares are not pledged to anyone.

Q: Do you have any renegotiation of your loans coming up?

A: No.

Q: What is your interest outgoing in the current year?

A: Those numbers are not substantial. We have managed to use commercial paper to keep our interest rates down. Though we have adequate working capital limits from banks, we use them primarily to move funds around; most of it is depended on short-term borrowings.

Q: In the previous quarter your margins fell to 21 percent from 40 percent reducing profitability by 60 percent. What was the cause for this pressure in the margins as well as the profitability and would you see a repetition or have things stabilized?

A: July-August-September is always a lean season and because of the spike of the rupee, last year, we saw some fluctuation in the volumes as well as some one off income. October-November-December is stable and par with expectations. Therefore, the situation has recovered completely.

Q: How would you expect business to evolve in FY13 and FY14? Should we take a straight forward pro rata like you did in the first half or will the second half be better as well FY14?

A: Given the seasonal nature of our business, especially holidays which are undertaken between April and August. Normally, the first half and a part July is seen as a good period. However, in the foreign exchange business, we will appreciate the movements of the rupee, dictate the volumes. Last year, we saw the depreciation of the rupee during the last quarter which spiked our volumes, this year we saw both. You could do a proportionate growth number at this point of time because we are focused on organic growth. We are hoping to clean a lot internal activity to manage our costs better than in the past.

Q: Suddenly, there is a lot of competition in your space. There is Make My Trip which offers internet offerings and a whole host of unbranded people have come up in your space. Will you be able to improve on margins or will margins pressurize because of unbranded competition growth?

A: The competition has been around for some time and if you look at our growth over the last couple of years, regardless of the competition we have grown. Primarily, we are focused on product and delivery and through better contracting we have been able to improve our margins. We will continue to proceed on this trajectory and improve our margins going forward.

Q: How is your forex business doing, how aggressive are you getting in terms of launching new branches and have all of them broken even?
What are you expecting from the travel card?

You are in direct competition with bank products in that space, like an Axis travel card which has an obvious advantage because they are in the finance space. So, from the forex business what kind of gains are you expecting and specifically from the travel card?

A: In October we launched a prepaid card or a travel card. The difference between our card and what is available in the market is distinct. On our card you can store up to 31 currencies whereas on all other cards available with the banks, you can only store one currency per card.

Secondly, we are the largest distributor of prepaid cards at the retail level and are currently in the process of converting these customers on to our own card. We will be able to register growth because we have only touched the surface as far as retail selling of the prepaid card is concerned. A lot of prepaid card off take currently is from the corporate sector but we are focusing on retail and have done this for the last year or so. Retail growth will drive this card systematically over the next couple of years. If you look at countries like Australia and Brazil, they had a similar experience and India is no different.

Q: Which is the most popular winter destination?

A: For the first time in the history of Thomas Cook we currently have a tour in Europe. The primary focus is South East Asia and Australia where we are actually seeing sizeable growth in terms of destinations. Singapore has become a little expensive as a destination but there are varieties of South East Asian destinations that have opened up and are getting a lot of attraction.

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