Fitch downgrades Rolta rating

Fitch Ratings has downgraded Rolta India's rating to 'B', indicating a negative outlook due to expectations of weakening liquidity.
"Fitch Ratings has downgraded Rolta India's Long-Term foreign and local-currency Issuer Default Ratings (IDRs) to 'B' from 'BB-'. The outlook is negative," Rolta said in a BSE filing.
'BB' ratings indicate that there is an elevated vulnerability to default risk, particularly in the event of adverse changes in business. However, there exists a financial flexibility that supports the servicing of financial commitments for the company.
'B' ratings, on the other hand, indicates a material default risk is present but a limited margin of safety remains.

"The downgrade reflects our expectations that Rolta's leverage and liquidity will weaken due to lower-than-expected cash generation and high receivable days. We expect its CFO - adjusted leverage to deteriorate to over 7.0x for the financial year ending March 2016 (FY16) - higher than the 5.0x level at which we would consider negative rating action," Fitch said.
Simultaneously, Fitch has downgraded the rating on Rolta LLC's USD 127 million, 10.75 per cent senior unsecured notes (due 2018) and Rolta Americas LLC's USD 367 million, 8.875 per cent senior unsecured notes (due 2019), and Rolta's senior unsecured rating to 'B' from 'BB-' and assigned Recovery Ratings of 'RR4'.

The notes are guaranteed by Rolta.

"We forecast its leverage to remain around 5.0x-6.0x during FY17-18, as receivable days could increase to 170-180 days (FY16 estimated: 163 days) given most of its revenue growth is driven by orders from the Indian central and state governments," Fitch said.
Fitch added the outlook is negative due to uncertainty over Rolta's ability to improve its cash generation to boost liquidity.
"We believe that the company will struggle to raise debt in the capital markets to meet its 2018 and 2019 US dollar bond maturities - both of these bonds are trading around, or below, 50 cents to the dollar - and the willingness of local banks to provide additional funding to meet these obligations is uncertain," it added.