Subex Limited To Restructure Its Existing FCCB Obligations

Subex Limited, a Telecom software solution company has announced that it will issue fresh FCCB bonds to replace the existing FCCBs under its restructuring plan. The new FCCBs will be replaced with the two existing FCCB loans due on July 9, 2012. The company will be required to issue further equity shares of Rs 10 each upon conversion of the new FCCBs and also the existing FCCBs. Subex in 2007 had raised $180 million (at 2 per cent) and $98.7 million (at 5 per cent) through FCCBs, that were supposed to mature in March this year which was extended to July this year.

The company at present has two FCCB loans outstanding, of which the first FCCB was issued at 5 per cent coupon rate with the total outstanding amount at USD 54.8 million at a conversion price of Rs 80.31 per share.

The second one was issued at 2 per cent with the total outstanding loan at USD 39 million at a conversion price of Rs 656.20 per share. The current market price is Rs 23.2, which is far below the conversion price and therefore not viable for the holders to convert the same. In this situation then the company has to redeem the debentures on the due date. However, it is currently under debt stress and not in a position to redeem its existing debentures, thereby choosing to go for the cashless exchange offer. The new FCCB is of a proposed amount of USD 131 million (Rs 727 crore) to be issued at a 5.7 per cent coupon rate with its maturity date in 2017 and a conversion price of Rs 22.79.

With the fresh issuance of the FCCB the company will get adequate time to consider various options, finalise and implement a comprehensive restructuring plan in respect of the existing 5 per cent and 2 per cent bonds. This fresh issuance of FCCB will provide a near-term relief with the extension of the maturity date.

As on March 31, 2011, the company had a debt obligation of Rs 528 crore and is reeling under a huge interest burden. We believe that the new restructuring plan will ease some of the pressure on the interest front and provide some financial stability. However, in the long run the company will have to chart out a comprehensive plan and make efforts to meet its future obligations.

On the financial side, the company has reported weak performance in the March 2012 quarter. Its topline and bottomline have declined by 12 per cent QoQ and 30 per cent QoQ respectively. The IT sector on the whole is facing problems on the back of a slowdown in the U.S. and the European countries and we do not expect any major revival in the near term too. Therefore investors should avoid the scrip in the near to medium term.