We are pleased to see that Rolta (OTC:RLTAY) has reported steady and improving profits, as well as free cash flow, when comparing its year over year numbers. We welcome this continued vigilance, but the company’s absurd proposal to their bondholders in regard to a debt restructuring is a wanton disregard for their (bondholders) senior claim on company assets, and should be NOT be taken.
We are writing this to ensure that Rolta (NSE-ROLTA) and its ad hoc committee know that the global standard on defaulted bonds is to be awarded 98% of the company value through stock dilution. For bondholders to accept Rolta’s proposed solution on top of this type of failure and loss of income is ludicrous. We ask that bondholders be awarded 98% of the company’s equity (stock) in exchange for one-half of the outstanding notes to compensate for the loss of principal and interest, and for the replacement 5 year bonds to be couponed at 8%, one-half of which may be paid by PIK. This will reduce Rolta’s cash interest payments by over 75%, and reduce the principal that is due in 5 years by 50%. We believe that these are reasonable hurdles that an ethical and sensibly focused management team can attain, and help ensure that Rolta will continue to survive as both a profitable and respectable entity.
We were actually stunned by the following recent announcement of a dividend consideration for Rolta common stock while its bonds are (and have been for a long time now) still in default.
Rolta India Ltd Board to consider Dividend for 2016-17
“A meeting of the Board of Directors of Rolta India Ltd will be held on May 30, 2017, to consider and take on record, the Audited Consolidated & Standalone Financial Results of the Company for the quarter and financial year ended March 31, 2017. In this meeting, the proposal for recommendation of Dividend for the financial year ended March 31, 2017, if any, shall also be considered.”
Considering that these senior bonds are legally in an advanced (senior) liquidity position, in front of the common stock, the fact that Rolta was entertaining the idea of utilizing its liquidity and excess free cash flow to pay a dividend is appalling. Rolta’s senior bonds are plainly in default. As a result of its failure to make interest payments, they have diminished in value to mere pennies on the dollar. As we all know, this is a legitimate debt that takes legal precedence over the common stock. The only viable reason that we can identify for Rolta to ignore its legal obligation to bondholders points to the fact that the chairman of the board and CEO of Rolta (Mr Singh, and his family foundation) own a combined interest of around 50% of its underlying stock. This appears to be a tremendous, and very ugly, conflict of interest between his personal holdings, and his duty as an officer of a public company.
Consequently, we are angered by the fact that the equity holders may be unfairly, unethically, and perhaps even illegally, taking advantage of the debt holders that made this company viable. Evidently, Rolta is not taking its bond default seriously if its board members gave consideration to and entertained the far fetched idea of boosting dividends while in debt default, having broken covenants with its lenders. Subsequent to Rolta’s profit improvement that brought the idea of paying out cash dividend, the company is offering to exchange its broken and unpaid notes for new, 5-year bonds that will only make “payments in kind” (PIK) at a very reduced coupon rate of 2%. This is a complete failure of the promissory notes and agreements Rolta signed on to when issuing the paper to receive the initial funding.
Therefore, we ask that Rolta stop the madness of insulting and disparaging bondholders with exchange offers which lack any benefit of substance and very clearly reduce their position to something significantly less than that of common stockholders.
Founder of Distressed Debt 1 LP and Durig Capital, Inc.
Please contact me via direct message with questions about Rolta's restructuring offer.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.