Educomp Solutions repays all outstanding FCCBs

The company raised USD 155 million (about Rs 852 crore) worth funds from World Bank arm IFC, French development finance entity Proparco, private investment firm Mount Kellett and the company's own promoters.

Funds raised would also be used for funding its capital expenditure and strengthening balance sheet.

Prakash also informed that Mount Kellet has got a seat on the board in place of the Gaja Capital Partners’ representative Gopal Jain.

"Gaja Capital used to have stake seven years back, but over a period of time their stake has gone down to almost nil in the company. From a perspective of good corporate governance, we would like to have new independent directors to strengthen our board," he added.

Below is the edited transcript of Prakash’s interview with CNBC-TV18.

Q: Take us through the details with regards to this USD 155 million that you have raised from a clutch of investors including something like IFC. What is the status of FCCB which Educomp had to service? A: I am pleased to say that we have paid of the FCCB in full so currently the FCCB is outstanding no longer. If you look at the break-up of the financing package of USD 155 million that we have raised USD 70 million out of that has come as long term external commercial borrowing from IFC Washington and Proparco, a French development bank.

USD 10 million has come in as fresh FCCB at a premium of 40% to the Sebi calculated floor price and about USD 50 million has come in as equity. We had three new investors IFC, Proparco and Mount Kellet which is a multi strategy investment US headquartered investment fund.

What is also important is the fact that the promoters have brought in a sum of USD 25 million which comprises of about USD 15 in equity and USD 10 million as warrants also at a premium of about 45% to the Sebi calculated formula share price.

Q: You also have Mount Kellet which gets a seat on the board in place of the Gaja Capital Partners representative Mr. Gopal Jain. How does that square, is Gaja Capital reducing its stake? Why are they giving up their seat?

A: Gaja Capital used to have stake 7 years back, but over a period of time their stake has gone down to almost nil in the company. Mr. Jain has been on the board for about 7 years now. Now that we are getting a representative from Mount Kellet we though it was a good time to introduce a new board member instead of Mr. Gopal Jain.

Mr. Gopal played a very vital role in the growth of the company. He continues to serve on the board of the subsidiary company. From a perspective of good corporate governance, we would like to have new independent directors to strengthen our board.

Q: Does Mount Kellet have a stake, what will be their equity stake?

A: Mount Kellet will have a stake. Mount Kellet has put in USD 30 million as a part of this funding round in the company and that including some of the stake that they already held in the secondary market, they would have a fairly important stake in Educomp.

Q: Can you break up what exactly would be the shareholding pattern going forward in terms of possible institutional holding as well as the promoter holding, what is it currently and what would it be post this?

A: There is not very significant change in the overall shareholding pattern. So just speaking in approximation because I don’t have the exact numbers right now, but foreign institutional holding in the company would be in the range of between 32-34%. Promoter holding will be approximately 46% on a fully diluted and a fully converted basis. The rest would be domestic institutional and retail investors.

Q: Give us details with regards to what exactly would the balance sheet of Educomp look like right now in terms of debt as well as in terms of a possible debt to equity ratio and cash available on the balance sheet?

A: Certainly, the debt to equity ratio obviously improves post this tranche of money that we have got in. On a consolidated basis Educomp’s debt equity stood approximately 1:1.6 and that will improve post this tranche that has come in. We have been a reasonably leveraged company.

We haven’t been overly leveraged but balance sheet further improves after this one is concerned. The debt in the company would have gone down because we have just paid off the FCCB. So USD 111 million paid off on FCCB replaced by about USD 70 million as long term ECB. To that extent, the overall debt of the company has gone down by about approximately USD 40 million.

Q: What is the interest payment though because you have raised fresh loans? What is the annual interest outgo?

A: This has come in at a very attractive interest rate of about 4.5% over Libor, which is significantly lower than the interest rate that Educomp is currently paying on its current sources of financing. To that extent this will also be accretive, we will save money through this transactions.