Indian IT solutions company Rolta late last week closed a $200 million high-yield bond, which is India’s first high-yield issuance this year and the first from a mid-cap Indian company in a while.
The lack of high-yield issuance from India stands in stark contrast to China. This year, Chinese property companies have dominated high-yield, propelling volumes to record highs. The same can hardly be said of India, where only a handful of companies, such as Aegis and more recently basmati rice producer REI Agro, have attempted to sell bonds without success.
While larger Indian companies such as Vedanta have sold high-yield dollar bonds, there has been scarce issuance from smaller companies. Issuance has been hampered in part by the 20% withholding tax on offshore bonds (with the exception of infrastructure companies), as well as the Reserve Bank of India regulation capping the cost of external borrowings for India companies at Libor plus 500bp. Companies can circumvent that by issuing through offshore entities and keeping the funds offshore, however.
Rolta is bringing part of the funds onshore, but this will be used to repay shareholder loans and redeem preference shares, which do not require approvals, according to a source.
The issuer was Rolta LLC and the guarantors were Rolta India and its various offshore subsidiaries. It had to pay up for its debut transaction, offering investors a 10.875% yield, which was seen as being generous for an issue that is rated BB- by Standard & Poor’s and Fitch. It certainly did offer a generous pick-up over comparables such as BB-rated Digital Globe’s 2021s which were yielding 4.9%, i-Gate Corp’s 2016s which were yielding 5.672% and Sound Global’s 2017s which were yielding 8.8%. The latter two were both rated B+. The bonds also rose one to two points in secondary trading.
Despite the generous terms, the deal did not look like an easy sell. The five-year bond, callable after three years, attracted a $400 million order book from 72 investors. There was a slew of bonds in the market on Thursday — including Poly Property Group, Want Want and China Railway Construction — which all attracted stronger order books.
Formal guidance was released on Thursday at 10.875%, and did not move from there. The deal was driven by US accounts, which put in expressions of interest before the company went out with formal guidance on Thursday.
“Without the US investors in the book generating momentum, the deal would not have gotten done,” said a source. “I hope this will open up the sector but clearly, we are not going to see a Indian high-yield company issue every three weeks.”
Rolta provides IT solutions to various industries including federal and state governments, defence, utilities and healthcare. The company has earnings of about $150 million.
Rolta India and its subsidiaries guarantee the bonds for 200% of the principal, which more than covers the principal and all interest payments. According to Indian regulations, if an offshore entity is guaranteed by an Indian parent, the guarantee cannot exceed 400% of the parent's net worth. About 75% of the proceeds will be for refinancing purposes and the rest for working capital.
US investors were allocated 43%, Asian investors 47% and European investors 10%. Fund managers were allocated 72% and banks 10% and private banks 18%.
Barclays, Citi, DBS and Deutsche Bank were joint bookrunners.
