REVIEW: ROLTA MAKES IMPRESSIVE COMEBACK WITH USD300M BONDS
Fri, 2014-07-18 14:33 by Lianting Tu
SINGAPORE, July 18 (IFR) - Rolta India made an impressive comeback with a USD300m 144A/Reg S five-year non-call three offering, a year after its USD200m debut high-yield bond.
The deal printed at a reoffer yield of 9%, much lower than 10.875% on the previous bond. Investor response to the new trade was also much more positive. The order book was 8-times covered, compared to only twice covered a year ago.
“This is a textbook high-yield transaction in its own right," said a banker on the deal. "And this is also a textbook example of how a high-yield bond issuer improved its reputation among investors after a difficult first deal.”
The Mumbai-based geospatial services provider went on a series of non-deal investors meetings in late June and early July. Investors expressed interest in Rolta issuing new bonds and the issuer decided to come out with a deal, another banker involved in the deal said.
Barclays and Citi, Rolta's leads, used an unusual syndication strategy. The book opened on Wednesday afternoon in Asia, allowing enough time for US investors to digest the deal. The interest from US investors allowed bankers to ensure the price suited US buyers, who normally ask for less premium than their Asian peers, bankers on the deal said.
The strategy worked. The deal closed at 9%, tightening considerably from the initial whisper of mid-9% and the official price guidance of 9.25%. In the end, US investors accounted for 35%, Asian took 47% and Europe bought 18%.
The final pricing is inside the fair value of low-9% many analysts assigned for the bond. Rolta’s 2018s were indicated at a yield of 8.5% when the deal was announced. But the bonds rallied by 4 points in the last two weeks from a cash price 103, or a yield of around 9.5%.
The company recorded impressive sales growth in the last financial year. Revenue for the year ended March 31 doubled to INR11.1bn (USD180m). Its free cash flow, however, was still in the red due to heavy capex.
Analysts expect Rolta’s capex cycle is close to an end. “We expect Rolta to generate free cash flows and deleverage its balance sheet over next few years,” analysts at Lucror Analytics wrote. The research house for high-yield bonds estimated Rolta’s free cash flow in the near term at USD50m-USD150m. But it believes the company’s leverage reduction target of debt-to-equity below 1x in the next three years is overly optimistic, given increased competition and lower margin for Rolta’s products.
Rolta will use about 75% of the proceeds from the notes to refinance its existing secured debt and the balance for general corporate purposes. Funds bought a whopping 79%, private banks, enticed by a 25-cent rebate, took 12%, and the rest went to others.
The bonds are issued in the name of Rolta Americas with Rolta India as guarantor. Rolta India has ratings of BB- from both Fitch and S&P. The proposed bonds are expected to be similarly rated.
The terms and conditions of the proposed bonds are similar to those on Rolta's 2018s, except that, on the new paper, the interest reserve account is removed, the fixed charge coverage ratio is lowered to 2.5x from 3.0x, and Rolta's guarantee is reduced to 1.5x the bond issuance amount from 2.0x, Fitch said.
The bonds, which hovered around reoffer price of 99.505 in secondary, will become callable on July 24 2017 at 104.4375 and the following year at 102.21875.