Indian revenue assurance vendor Subex has offered to exchange its US$180m of FCCBs for new US dollar denominated bonds. The original bonds had a 2% coupon with a due date of 2012. Because of the fall in Subex’s share price, the likelihood of conversion to equity is remote. The new bonds will have a coupon value of 5%, and will also fall due in 2012.
What is not public is the full details of the offer to existing bond holders, which are only available in the ‘Exchange Offer Memorandum’. One guess is that the higher coupon value reflects an attempt to raise new capital from existing FCCB holders. This might be used to fund an acquisition. We shall have to wait and see how many of the existing bond holders agree to the deal and hence if Subex can solve its underlying problem: not generating sufficient cash from existing operations to be able to pay back on the current FCCBs. For Subex, this might be a case of double or quits… and it is up to the investors to decide whether to double up or quit whilst they are behind.
Update: Thanks to Atul Jain of TEOCO, who has posted a comment explaining more about the exchange and Subex’s reasons for offering it. In short, the deal would reduce Subex’s debt leverage and make it likelier that bond holders will convert their debt into equity.