Rolta India's dollar bonds crash as company defaults on interest payments

MUMBAI: Rolta India’s US dollar bonds plunged after the company defaulted on interest payments which was followed by a rating downgrade, raising doubts about future overseas borrowing by lower rated Indian companies.

Bonds of the company are trading at about 35 cents on the US dollar, which means that for every $1 invested three years ago, will fetch just about a third of the total investments, said traders.

Rolta did not pay about $6.9 million interest due on May 16, said two bankers who did not want to be identified. The company has a 30-day grace period, which ends mid-June.

That triggered rating downgrades. “The rating action reflects Fitch’s assessment that short-term liquidity has deteriorated to a position where credit risk is very high,” said Nitin Soni, primary analyst at Fitch Ratings. “Future developments that may lead to a downgrade include deterioration in liquidity such that.”

Rolta stunned investing community when it raised 200 million when its market capitalisation was less than $180 million.

While the company’s ability to repay was questioned even during the time of sale, its financials deteriorated with it posting a Rs 443 crore loss in the December quarter.

Some investors have been shorting the bonds expecting the company to default.

Deutsche Bank raised investment recommendation on Rolta India bonds to buy from hold a day after the company denied allegations made by short-seller Glaucus Research about fabricated capital expenditures, Thomson Reuters reported April last year.

“Issues such as persistent negative FCF (free cash flows) have been well known for a while, as the company was in the middle of a heavy capex cycle, which is now over, and in fact, it finally turned slightly free cash flow positive in the last quarter,” Deutsche said.