iGate chief executive and managing director Phaneesh Murthy agreed the buyback was “expensive” at this price. “We believe that the price of Rs 520 (per share) provides both a reasonable premium to the Patni shareholders and is still accretive to iGate shareholders while being strategic to the company,” Murthy said.
He said the company’s decision to raise the offer price was based on banks’ willingness to give more funds for the delisting, given its strong financial performance in the last quarter and the benefits of a streamlined corporate structure.
iGate has raised $265 million (Rs 1,356 crore) in debt from DBS Bank, Singapore, for this, taking its total debt to $1.03 billion. It was earlier planning to raise $215 million to fund the delisting, indicating that it would only pay up to Rs 450 a share for the remaining Patni stake.
iGate has received offers for 16.2 million shares, 60.10 per cent of the total offer size of 26.8 million shares. According to estimates, the company will have to shell out about Rs 1,394 crore to acquire these shares (26.8 million) from minority shareholders.
The completion of the process will take iGate’s share in Patni to 93 per cent, from about 82 per cent at present. The company said it was expecting to acquire the rest of the shares from minority shareholders in a year, as the book would remain open till then.
Murthy said debt had crossed $1 billion, but it was little more than twice the cash position. iGate has a cash reserve of $435 million. Other than the $265 million, iGate has also raised $770 million via high-yield bonds.
“Our Ebitda (earnings before interest, taxes, depreciation, and amortization) margin at about 25 per cent is quite healthy and we generate about $250 million of cash every year. So, after paying $85-90 million towards interests every year and taking the operating expenses into consideration, we are expecting to generate free cash of $125-130 million every year, which will be used to repay the debt,” he added.