Tight liquidity conditions propel decision, in wake of adverse revenue and cost trends in recent years.
ICICI-backed 3I Infotech Ltd, a software product and services company, is heading for corporate debt restructuring (CDR).
It had loans and advances worth Rs 1,966 crore on the books as of the end of September 2011. Among the options being explored under financial restructuring are converting short-term loans into long-term credit and revision in interest rates.
A senior public sector bank official said the company could not refinance dues as liquidity conditions were tight. Hence, the company has opted for a CDR, where there is a precribed procedure, where the bank with the most loans convenes a meeting of the others to consider what to do, after getting a report in this regard.
The lenders, headed by ICICI Bank, are yet to give a report to their joint forum. The case may come up for discussion at a forum meet scheduled the coming Monday, another bank official said. When asked, the company’s chief financial officer, Amar Chintopanth, declined to comment.
The price of Infotech stock rose sharply on Tuesday, closing 14.6 per cent higher at Rs 16.22 against the previous close of Rs 14.22 on the Bombay Stock Exchange.
According to BSE shareholding data, ICICI Strategic Investment Management Fund, as promoter, had 20.33 per cent stake in the company at end-September 2011. Other key institutional investors include Life Insurance Corporation of India, with 7.14 per cent, and State Bank of India with 2.73 per cent.
The management expects to realign debt servicing with the pattern of cash flows, considering its revenue between emerging and developed markets. The growth in revenue has been almost flat for three financial years. Consolidated revenues were Rs 2,304 crore in 2008-09, which improved to just Rs 2,587 crore in 2010-11. For the six months ended September, it reported revenue worth Rs 992 crore. Net margin also fell from 12.2 per cent in 2008-09 to 9.8 per cent in 2010-11.
According to the annual report for 2010-11, three factors have affected the company in the past two years. One, it had to exit from some domestic businesses. For instance, in the third quarter of 2009-10, it had announced a decision to pull out of the e-governance kiosk business. Though it continues to be in this segment, the company had said it would not be in government projects that required a large upfront investment and had inherent uncertainties. After a few quarters, the company had also hived off Taxsmile, an online tax management portal.
Two, its acquisition strategy in banking financial services did not work as expected. While acquisitions brought in large revenue and adequate Ebitda (operating earnings) margins, it put a strain on cash flows and increased the interest burden. Since 2000, it had acquired close to 40 companies. Last year, it had sold its US-based billing and payments unit, consisting of Regulus Group and J&B Software, to an affiliate of private equity firm Cerberus Capital Management, LP, for $137 million.
Finally, these acquisitions were in part funded through Foreign Currency Convertible Debentures (FCCBs), which could get converted into equity due to the meltdown in global financial markets. This added to the debt burden. According to Bloomberg data, its FCCBs are due for redemption later this year. About ¤20 mn worth of FCCBs are due to mature in March and $66 mn in June 2012.