Educomp Solutions repays all outstanding FCCBs

Education services firm Educomp Solutions has repaid all FCCBs in full and currently has no outstanding FCCB, Shantanu Prakash, managing director, Educomp Solutions told CNBC-TV18.

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. _PAGEBREAK_ Q: When do you repay? Whether you will hedge them and hedge anytime soon? A: That is a decision that somebody in Educomp treasury will take an appropriate decision as to when that happens to be hedged. We follow a very conservative policy because as you know we can definitely take business risk, but we do not want to take foreign exchange risk. We will take an appropriate decision in that regard. This is a 8.5 year facility with a three year moratorium. So even the terms of the loan given by IFC and Proparco are very conducive and they match Educomp’s overall asset liability profile. This is the kind of money that Educomp needs to sustain its growth and its leadership position. Q: I also heard that you have raised money via FCCB around USD 10 million if I am not mistaken what would be the detail? A: That is part of a release so USD 70 million ECB, USD 10 million is in FCCB at a premium of 40% from the same investors. The way you should look at it is USD 70 plus USD 10 - USD 80 million comes in from IFC and Proparco out of which USD 70 million is ECB and USD 10 million is FCCB. Q: You had guided for 25-30% revenue growth for FY13 and margins to increase by about 200 basis points. The performance we understand lately especially in smart class has although volumes are good margins are under pressure would you want to teak this guidance somewhat. There are a lot of brokerages who follow you very closely who believe that perhaps revenue growth will be more like 20% and margins if anything could slip 200 basis? A: I would say that there is no such occasion right now for us to re-look at this. The guidance just came last month post our Q4 closing. We have taken all coordinates into cognizant before giving the guidance. We are very confident that 25% revenue growth and slight increase of about 200 bps in margins is very sustainable. Given the fact that the business is growing, the volumes are growing and every part of Educomp business will do much better this year than it did last year. Q: Any other changes to capital that we should expect in the current year or is this it for FY13? A: This is the big significant event as far as the company is concerned because there was an FCCB overhang and we are very happy we got the highest quality investors to come in and deliver that vote of confidence in Educomps long-term business model. With this behind us I don’t think that we are looking for any other major significant capital event in the near term at all. Q: There were reports early July that you all are undertaking some significant cost cutting as well in the management on the company front. Would you like to clarify in terms of any significant cost cutting via employees etc which you all have undertaken in this month? A: I would say that a lot of news reports were clearly horrendous, did not have facts in place. However the year 2012-13 for Educomp is a year of consolidation. A large part of that means looking inward, focusing on core competencies, ensure that our operations are extremely efficient. When you do that there would be occasion for you to restructure, there will be occasion for you to trim from the company. I would say this is part of our announced strategy of consolidation and that makes us a healthier, leaner and a more efficient organization. Q: What were you 10% leaner in terms of number of employees or 10% leaner in terms of wage bill? A: No wage bill is a very small part of restructuring. There are many other big areas that we look at for example we look at how can we collect money faster from our customers. We look at how can we reduce our inventory holding period, which are larger big ticket items. Q: What happened really in terms of employee strength? A: I would say that nothing really happened. There is a natural process of attrition. Some one in the media blew that out of proportion and if you look at the net hiring in Educomp, we hired more people in last quarter. Our employee headcount went up and those are the facts.