Sales will be in region of 10-12% for the yr: Rolta India

In an interview to CNBC-TV18, KK Singh, the chairman and managing director of Rolta India talks about the funding of USD 135 million which it has tied up via external commercial borrowings (ECB) to buyback and or redeem its Zero Coupon Foreign Currency Convertible Bonds (FCCB) due on June 29.

Read: Rolta India ties up funding for FCCB buyback Below is an edited transcript of his interview. Watch the accompanying video for more. Q: We understand that you have raised around USD 135 million of ECBs to actually replace your FCCBs. Take us through the buyback process and what it would mean for the company?
A: This buyback was launched today morning at the Singapore Stock Exchange. It will be open for the next two days. We have offered all the stock bondholders of which the face value is about USD 96 million plus and the total redemption value is about USD 135 million. We offered to buy back the whole amount subject to RBI guidelines. The RBI guidelines do provide for some discounts to be provided which are at the minimum level of 8%.
There might be some investors who might find better use of this liquidity because this liquidity will be available in their hands three months in advance. So they will be able to probably use this liquidity for a better purpose and therefore they may like to redeem it. So for that reason we have launched it as a good gesture for investors. Q: Have you spoken to any of the investors. Did anybody show interest?
A: Our bankers did speak and their view was that yes there might be some interest on this. Q: You said that your raised USD 135 million of ECBs to pay back the FCCB owners. What is the interest rate at which the new ECBs have been raised?
A: They have been raised at 5.5%, libor plus 5.5% for a period of about seven-year maturity so they will mature after five-six-seven years. Q: What is libor plus 5.5% in terms of a complete interest rate?
A: It should be in the range of 6.25% Q: This would be of course the un-hedged portion? If you swap it, could it be higher?
A: This is the un-hedged portion but we also believe that the currency is at its peak almost so when you go back after five-six-seven years the currency in our buying somewhere in between there will be a window to hedge it at better rates. Q: What does the balance sheet of the company look like now?
A: As far as the balance sheet is concerned, this was an unsecured liability and from June 30 it will become a secured liability. To that extent, the total loans will not differ. The total loans which are around USD 300 million or so will remain almost the same. We have healthy reserves which are in the range of almost USD 400 million plus as on last year so they will still be healthy. As we close this year they will be even more. We believe that our balance sheet is in line to take this kind of loan and to continue it. Q: Are there any more fund requirements needed to be raised via equity which we can expect from Rolta?
A: We have a general resolution to raise any QIP or anything at an appropriate window if it opens and it gives. The idea will be that we will do that and repay back our loans. We will deleverage the balance sheet if we are able to do that. That will be the idea. Q: All this is built on your growth continuing. Last time your sales were down by about 2.8% quarter on quarter. How has the current quarter panned out? What visibility do you have for the next quarter? Will you continue to see pressure?
A: We want to go away from the lower end of the value chain where we have been because for the last four-five years, we have been doing transformation by adding solutions, by adding IP and by doing all those kind of things. Of course, we have been doing traditional business also. We have taken a cautious decision to cut back those traditional businesses where we have been on the lower end of the value chain. Q: Will you be reporting lower sales in Q3 and Q4 as well?
A: We would report marginally higher sales or whatever. This year it will not be very big growth. We had said about 10-12% so we will be in that kind of region overall. But as we go forward in the next year we are much more bullish. Q: What resulted in this change in strategy for the company to low end services? How does this affect guidance?
A: This strategy has been in place for almost four years now. What we have done is we have purchased a lot of IP, IP related companies worldwide. We have developed our own IP so now we are a very IP centric company compared to a service centric company. This has brought the company to a higher level of the value chain. Q: Why is it showing pressure now?
A: It is showing pressure because as we go forward, the low end service jobs which were earlier coming in are now coming in at even lower rates and we do not want to take those. As we do not want to take them, they certainly do not appear on our revenue because they do not give us the bottomline returns which we are looking for. Q: What is the ripple effect on guidance for the company?
A: Overall, I believe we might be able to maintain 10-12% for this year but as we go forward into the next year we believe we should be able to do even better. That is what we are looking at.