Zylog Systems plans to raise $25 mn

IT products, services and solutions provider Zylog Systems Ltd is planning to raise $25-30 million (Rs 135-162 crore) by diluting its shares to meet various fund requirements. Besides, it would raise Rs 220 crore from banks for working capital requirements.

The company would be finalising the equity dilution in the parent company in the next four to five weeks and talks are on with big foreign institutional investors (FIIs), who are keen on the secondary market, said P Srikanth, director, Zylog Systems.

It is also looking at bringing in a strategic financial investor to its wireless broadband (Wi-Fi business) subsidiary Zylog Systems India.

“There is a lot of appetite for the stock at the lower level. People are seeing it as a valuable buy and we are speaking to a few funds. There would be an equity dilution in the parent company and also a stake sale in the subsidiary company. We are looking at raising between $25 million and $30 million from equity dilution,” said Srikanth. He said plans to bring in a strategic investor into the subsidiary were yet to be finalised.

The company would be raising around Rs 250 crore on the equity side in the next one year and would bring down the debt in the coming years, said SP Srihari, chief financial officer, Zylog Systems.

On the working capital requirements, it expects an appraisal for an additional Rs 220 crore and is looking at inducting two more banks into the consortium.

External funding
The company did not go for external funding either in terms of debt or equity for almost last two years. However, the pressure from the rupee depreciation on foreign currency loans had affected liquidity, said Srikanth. It has a debt of Rs 277 crore in terms of working capital and another Rs 100 crore in external commercial borrowings in foreign currency, while the limit was settled in terms of Indian currency.

The rupee depreciation has had a negative impact, since almost 85 per cent of its business is onsite, while only 15 per cent is done through offshoring. The impact was on around Rs 75 crore in the quarters starting January, 2012. This, in turn, resulted in a crippled liquidity position.

The company, in the third quarter of the current fiscal, had set up two subsidiaries, one each in Dubai and Malaysia, to handle some of its business.

“We are looking at growing in Dubai and Malaysia. We will start billing from those centres in this quarter itself,” said Srikanth. The company would start with recruiting a few hundred staff in these subsidiaries. It is expecting a staff strength of 500-600 each in Dubai and Malaysia in the next 24 months. While Dubai offers a permanent tax holiday, Malaysia gives a 10-year tax holiday for these subsidiaries.

Zylog is also working on multiple mechanisms. including issuance of preferential warrant, to retain the promoters’ shareholding, said Srihari. The promoters' shareholding is at around 32 per cent, which was 43 per cent earlier.

The company’s share price started falling since the lenders liquidated the pledged shares. According to reports, the fall started when in October 18, 2012, Karvy Financial Services sold 250,000 shares on the BSE.

According to the BSE, the promoters had a total holding of 33.90 per cent in the company as on December 31, 2012, of which around 73.25 per cent is under pledge.