Rolta India: Glaucus Research – “Rolta has fabricated its reported capital expenditures in order to mask that it has materially overstated its EBITDA”

Glaucus Research Group California LLC initiates coverage on Delaware-Issued 2018 and 2019 Corporate Bonds of Rolta with a Strong Sell rating

Rolta India Limited (“Rolta” or the “Company”) is an information technology company with operations primarily in India and North America. In 2013 and 2014, Rolta issued an aggregate of US$ 500 million of junk bonds (the “Junk Bonds”), which are due in 2018 and 2019, and have attracted investors by offering tempting yields.

Based on the evidence and analysis presented in this report, we believe that Rolta has fabricated its reported capital expenditures in order to mask that it has materially overstated its EBITDA. The margin for error is narrowing: Rolta’s net debt has risen from US$ 319mm at FYE 2011 to US$ 740mm in Q3 2015 and the Company has almost nothing to show for its highly suspicious spending.

We believe that in reality, Rolta’s business does not generate free cash flow and that Rolta cannot repay foreign bondholders without refinancing. Indeed, we suspect Rolta approached foreign bond markets because it was unable to borrow in India. Ultimately, we believe that bondholders and ratings agencies have failed to price in evidence that Rolta has materially misstated its financial performance and the risk that Rolta will default on its Junk Bonds. We value the bonds at the recovery value of the offshore assets, which we estimate to be USD 0.16 on the dollar.

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