28 Sep 2009 16:06
NOT FOR DISTRIBUTION TO ANY PERSON LOCATED OR RESIDENT IN THE UNITED STATES OR ITALY.
SUBEX LIMITED PUBLISHES SOME ADDITIONAL BACKGROUND INFORMATION CONCERNING ITS INVITATION TO THE HOLDERS OF ITS OUTSTANDING US$180 MILLION 2.00% COUPON CONVERTIBLE UNSECURED BONDS DUE 2012 TO EXCHANGE THEIR BONDS FOR NEW US DOLLAR-DENOMINATED 5.00 PER CENT CONVERTIBLE UNSECURED BONDS DUE 2012
Mumbai, 28 September 2009 - Subex Limited (the "Company") has today published the following announcement setting out some additional background information concerning the invitation made by the Company to the holders of its existing US$180 million 2.00% Coupon Convertible Unsecured Convertible Bonds due 2012 (the "Existing Bonds") to offer to exchange their Existing Bonds for US dollar-denominated 5.00% Convertible Unsecured Bonds due 2012 (the "New Bonds") to be issued by the Company (the "Exchange Offer"), as more fully described in the exchange offer memorandum dated 25 September 2009 (the "Exchange Offer Memorandum") and should be read in conjunction with such Exchange Offer Memorandum.
1. What is the purpose of the Exchange Offer?
The Exchange Offer reduces the principal amount of the Company's debt obligations from US$ 180 million in respect of the Existing Bonds to up to US$ 126 million in respect of the New Bonds. This would enable the company to lower its leverage ratio, strengthen its balance sheet and be better positioned for future growth.
The New Bonds will have a lower conversion price compare to the Existing Bonds, and is therefore more likely to be converted into shares of the Company, and thereby further reduce the debt obligations of the Company when the New Bonds fall due for redemption.
2. Why did the Company undertake the Exchange Offer instead of pursuing other options?
The Company considered several options to address the issue of the redemption of the Existing Bonds in March 2012. These are set out below, together with a brief summary of the reasons why the Company considered them unattractive in comparison with the Exchange Offer:
a. Buying back the Existing Bonds from the market in accordance with the relevant guidelines of the Reserve Bank of India
The Company has limited free cash available to undertake such an endeavour and considers the other refinancing options available to it unattractive.
b. The sale of the Company's asset acquired from Syndesis
The asset acquired by the Company from Syndesis has been depreciating in value owing to the losses incurred by that business and the global market conditions. An attempt to sell this asset to raise funds to pay down any liability under the Existing Bonds may be regarded as a "fire sale" by potential buyers and consequently, the proceeds of any such sale may only be a fraction of what the Company had paid for that asset. Such proceeds are also not likely to be sufficient in itself to finance the redemption of the Existing Bonds in full at maturity.
c. Equity raising to refinance the redemption of the Existing Bonds
The dilutive effect on the shares of the Company that would result from an attempt by the Company to raise finances through the issue of additional equity is expected be high because the Company would have to issue up to US$ 245 million of additional shares in order to redeem the Existing Bonds in full at maturity using the proceeds of such an equity offering. The Company's share price is also likely to be depressed as a result of any such issue of additional shares.
d. Debt raising to refinance the redemption of the Existing Bonds
The Company expects that the cost of any further debt raising to finance the redemption of the Existing Bonds at maturity is likely to be on unattractive terms and expensive.
e. Exchange Offer
For the reasons above, it is the view of the Company that the Exchange Offer is the most viable option for the Company and one which is the most likely to achieve its capital management objectives.
3. Why is an investor representation letter required?
The New Bonds are a suitable investment only for sophisticated and institutional investors, who are capable of determining the risks associated with the exchange. In addition, as a result of the timing of the exchange, and the long settlement required by the conditions associated with it, the final settlement of the exchange will take place shortly before the publication of the Company's 30 September interim results. As a result of these factors both Subex and Barclays Capital will require investors to indicate that they are suitable investors and that they understand and accept the risks associated with the exchange as a condition of participation.
4. What will happen to the Existing Bonds that are exchanged for New Bonds?
The Existing Bonds that have been submitted for exchange pursuant to the exchange offer will be cancelled immediately and will not be resold.
5. What is the impact of conversion of the New Bonds on the major shareholders?
The largest shareholder is Subash Menon and his associates, who own 12.84% of the Company. Upon full conversion of the New Bonds, their shareholding will drop to 4.05%.
6. If all of the Existing Bonds are exchanged for New Bonds, what proportion of the Company's shares will they represent upon conversion on a fully diluted basis£
68%
7. How long is it expected to take for a bondholder to receive the shares upon the receipt by the company of a conversion notice?
The Company expects that it will take approximately 30 to 40 days from the date of its receipt of the conversion notice.
8. Please provide a summary of your most recent financials?
Consolidated financials (in Rs. millions)
| | Q1 FY09 | FY 09 | Q1 FY10 |
| Net Sales | 1364.92 | 5725.55 | 1227.54 |
| EBITDA | 62.55 | 662.06 | 200.77 |
| EBITDA margin | 4.58% | 11.56% | 16.36% |
| Profit after tax | -656.39 | -1883.63 | 351.28 |
| Profit after tax margin | -48.1% | -32.89% | 28.62% |
| Paid up capital plus reserves and surpluses | Not applicable | 3812.81 | Not applicable |
9. Why has the Company launched the exchange offer prior to the scheduled release of its 30 September interim results? Why not wait until those interim results have been published? Both the price of the company's shares and the price of the Existing Bonds were trending upwards. Any further delay to the launch of the Exchange Offer would have had an impact on the commercial terms of the New Bonds and exposed the company to potential market risk.
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The Exchange Offer is not being made in the United States or Italy or to any U.S. person or to any person located or resident in Italy and is also restricted in other jurisdictions, as more fully described in the Exchange Offer Memorandum.
Further details of the Exchange Offer are set out in the Exchange Offer Memorandum. Eligible holders of the Existing Bonds are advised to carefully read the Exchange Offer Memorandum for full details of, and information on the procedures for participating in, the Exchange Offer. This announcement is to be read in conjunction with the Exchange Offer Memorandum.
Barclays Bank PLC is acting as Dealer Manager and The Bank of New York Mellon, London Branch is acting as Exchange Agent.
Requests for information in relation to the Exchange Offer should be directed to the Dealer Manager:
Barclays Bank PLC
Telephone: +44 20 7773 8300 or +852 2903 2776
Email: projectstanford@barclayscapital.com
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THIS ANNOUNCEMENT IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN THE UNITED STATES OR IN ANY OTHER JURISDICTION, AND NONE OF THE SECURITIES TO BE ISSUED PURSUANT TO THE EXCHANGE OFFER, IF CONSUMMATED, MAY BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR IN ANY OTHER JURISDICTION WHERE SUCH SALE IS PROHIBITED. THE COMPANY DOES NOT INTEND TO REGISTER ANY OF THE SECURITIES TO BE ISSUED PURSUANT TO THE EXCHANGE OFFER IN THE UNITED STATES.