3i Infotech plans to sell assets to pay back 20-30% of its debt

Till 2009, the company had acquired about 40 firms, mainly financed through debt

The new management of 3i Infotech, a midcap software services firm, has its task cut out: To bring the company back on a growth track.

The management plans to repay at least 20-30 per cent of its debt by selling some assets.

The new management headed by Chief Executive Madhivanan Balakrishnan and Chief Financial Officer Charanjit Attra are now focused on sales growth. The company’s performance was hit as it defaulted on some of its foreign currency bond payments.

3i has restructured debt of Rs 1,300 crore, at 14.75 per cent rate of interest. The company had converted the rupee loan into a dollar loan of $215 million at an interest rate of 6.5 per cent plus three-month London interbank offer rate. “This reduces our cash outflow for interest payment to Rs 80-100 crore per year from the earlier Rs 250 crore,” said Attar.

Funds through these bonds were raised by the company for acquisition. “I do think the current situation of the company was partly due to the debt raised for acquiring companies. And, then integrating these businesses. There were certain acquisitions that were not a correct fit for us. In 2008-09, the company did plan to take these debts and convert into long-term bonds. But the slowdown dried our financing plans and we were hit badly,” said Attra.

Till 2009, the company had acquired about 40 firms.

Attra added the management plans to sell some of the non-core businesses, amounting to 20-30 per cent of the loan amount, to repay the debt in the next 18-24 months. One of the acquisition the company has identified to sell is Locuz, which it acquired in 2008.

Business Standard had first reported 3i Infotech for divesting majority stake in Locuz

The inability of the company to convert its foreign currency convertible bonds into equity or make a repayment to bond holders also impacted business. Attra agrees this hurt their sale cycles that were extended to five-six months from three earlier. “But it’s good to share that we now see our sale cycles back within three months,” he added.

Additionally, the company has a FCCB repayment worth $93 million that matures in 2017. The interest rate for this is over five per cent. “We started at around $125 million around 18 months ago and we have got this down to $93 million as bond holders have turned part of their bonds into equity,” said Attra.

With the board giving a mandate to the management to bring the company back to black, Attra and the management team are focused on growing its top line at a compounded annual growth rate of 10-15 per cent for the next five years and get its earnings before interest, taxes, depreciation and amortisation in the 20 per cent range. He claims that the company has relaunched a few of its products in both the Indian and European markets. “We recently won a large deal in the BFSI space,” he added.