is considered the first true high-yield credit from an Indian
While Indian conglomerates such as Reliance and Tata
Steel have been active in the debt markets, they have not
needed to negotiate extensive high-yield covenant packages
because they are well-known names in the market;
The bonds, issued by a special purpose vehicle of
Rolta’s US subsidiary, required a two-layer
guarantee from both the parent company and its three largest
Only days after Rolta issued its bond, London-listed
Vedanta followed with a $1.7 billion high-yield offering -
its first US dollar-denominated bond in two years and the
largest-ever corporate high-yield bond from Asia.
Rolta’s high-yield bond has been described as the
first true Indian corporate credit in the high-yield market.
Although some have debated this designation, copycat deals may
Large Indian corporates have previously tapped international
debt capital markets but few are considered true high-yield
credits. Tata Steel and its subsidiaries recently issued
several unrated bonds, for example. However, the Tata brand is
very well known within the investor community. Other deals,
Suzlon’s offering backed by the State Bank
of India’s standby letter of credit,
involved credit enhancement structures.
This deal provides a framework for India's small and mid-cap
corporates to finance in the US dollar-denominated bond
Although other Indian corporates have issued high-yield bonds,
they have been big names such as Reliance and Tata, or have
otherwise had government ownership, said Stephen Peepels, head
of DLA Piper’s US capital markets practice in
"None of these companies went through the process of creating a
fully-developed set of covenants to match up with international
high-yield precedent and market the deal as a true Indian
high-yield debt offering," he said.
Rolta is an IT sector company, headquartered in Mumbai.
Rolta LLC, a special purpose vehicle of Rolta’s US
subsidiary, sold $200 million of notes due 2018 with a coupon
of 10.75% under Regulation S and Rule 144A. The offering was
two times oversubscribed, and was rated BB- by Standard &
BB- (EXP) by Fitch.
press release noted that there was demand
by over 70 accounts globally, with Asia contributing 47% of the
demand and the US 43%.
A source close to the transaction said that other deals, such
as Vedanta and Rain Calcining, involved Indian entities. But
most of those businesses' earnings before interest, taxes,
depreciation and amortisation (Ebitda) and assets were outside
of India. Conversely, Rolta generates a substantial part of its
cash flow from India.
Peepels added that Rolta is a purely Indian corporate, but does
business internationally in 30 to 40 countries with
subsidiaries in the US, UK and Middle East.
"To make the transaction tax efficient, the bonds were issued
by a US special purpose vehicle (SPV) created by the
company’s US subsidiary," he said.
Srinivas Parthasarathy, head of Trilegal’s capital
markets practice, explained that there were extremely high
levels of diligence in this transaction not only because it was
a 144A offering, but because of the complex nature of the
Another source close to the deal told IFLR that the
most challenging aspect of the deal was negotiating the
The source said that although the issuing entity was a US
entity, the credit had to be sold on the Indian
parent’s creditworthiness, so a guarantee by the
Indian parentco was required.
Given the significant Reserve Bank of India limitations on
guarantees of offshore indebtedness by Indian entities,
intricate terms had to be created to enable the parent
guarantee to comply with Indian regulations and corroborate the
marketing value of the parent guarantee.
Further, Peepels explained that the company received
preliminary feedback that from a bondholder protection
standpoint, more security would be beneficial to a successful
"While the parent company in India was always going to
guarantee the bonds, we also put in place subsidiary guarantees
by each of Rolta’s three largest subsidiaries,
which resulted in a two-level guarantee structure," he
As there were no comparable Indian corporate credits,
negotiating covenants also proved challenging.
Rolta is headquartered in India, but about 40% of its revenue
is from the US. Deal counsel discussions around the covenants
reflected that, Peepels said.
"Although this was an Indian company and a debut issuer, the
issuer would not accept a covenant package that was overly
restrictive or failed to consider its strong corporate
governance," he said.
Given the high-growth nature of businesses in the IT sector,
the covenant package for this issuance required even greater
customisation to provide sufficient flexibility to capacitate
growth over the five-year life of the bonds, while also being
mindful of bondholders’ considerations.
Intercompany loan documentation
Rolta issued bonds in order to use the proceeds to pay down
some of its more expensive debt obligations. Bond proceeds were
delivered to the issuer, who then loaned these funds to its
various operating companies to repay their debts.
"We helped to create intercompany loan documentation to ensure
that the funds into Rolta LLC were properly secured as they
went from the LLC to the subsidiaries," Peepels said.
Deal counsel expect Indian corporates to issue more high-yield
bonds. But only corporates with strong offshore subsidiaries
will be able to participate in this market, given coupon
Parthasarathy said there were several Indian corporates with
substantial overseas legal entities and operations that would
be looking to tap opportunities in this space as the market
Peepels agreed. He noted too, that the opening of this market
created an opportunity for investors to more closely examine
Indian high-yield debt. That in turn could open the door to
high-yield credits from other great Indian technology companies
or companies in another sector with a similarly positive story,
But other market participants were less optimistic about the
future of India high-yield bonds.
Varoon Chandra warned that the few Indiaco
transactions in which overseas companies had issued
parent-guaranteed bonds had opened up interest in the market,
but had not prompted many copycat deals.
"The answer as to why we’re not
seeing more of these deals is probably more due to commercial
concerns rather than regulatory ones, with covenant packages
not easy to finalise," he added.
The issuer’s SGX disclosure can be found at the
The issuer was represented by DLA Piper as US
counsel and AZB as India counsel.
Barclays, Citigroup, DBS and Deutsche Bank were the joint lead
managers, and were represented by Davis Polk
in relation to US law. Trilegal was their
India law counsel.
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