 "Zylog Systems to raise $25-30 million through equity")
The company would be finalising equity dilution in the parent company, for fund raising, in the next four to five weeks and talks are on with big Foriegn Institutional Investors (FIIs), who are keen on the secondary market, said P Srikanth, director, Zylog Systems. He added that the company is also looking at bringing in strategic financial investor with some industry background to its wireless broadband (which is into Wi-Fi business) subsidiary Zylog systems India, who could bring in industry based inputs into the business.
"Now there is a lot of apetite for the stock at lower levels. People are seeing it as a valuable buy and we are speaking to a few funds and there would be an equity dilution now in the parent company and also a stake sale in the subsidiary company. We are looking at raising anywhere between $25-30 million from equity dilution in the parent company," said Srikanth. He said that the plans to bring in strategic investor into the subsidiary is yet to be finalised.
The company would be raising around Rs 250 crore on the equity side in next one year and plans are to bring down the debt in coming years through various other means, said S P Srihari, chief financial officer, Zylog Systems.
On the working capital requirements side, the company is expecting an appraisal for an additional Rs 220 crore as working capital gap and is looking at inducting two more banks into the consortium.
The company did not went for external funding either in terms of debt or eqity for almost last two years. However, the pressure from the Rupee depreciation on foreing currency loans, which has affected the liquidity of the company, said Srikanth. The company has a debt of Rs 277 crore in terms of working capital and another Rs 100 crore in terms of External Commercial Borrowings in foreign currency, while the limit was settled in terms of Indian currency.
The Rupee depreciation has had a negative impact on the company's business, since almost 85 per cent of its business is onsite, while only 15 per cent is done through offshoring. The Rupee depreciation has impacted on around Rs 75 crore of the company in the quarters starting from January, 2012, which in turn resulted in a crippled liquidity positon.
The company, in the third quarter of the fiscal year, has set up two subsidiaries, one each in Dubai in United Arab Emirates (UAE) and Malaysia, to handle some of its business in these places.
"We are looking at growing Dubai and Malaysia. Companies have been created and we will start billing from those centres in this quarter itself," said Srikanth. The company would start with recruiting a few hundred staff in these subsidiaries, which would be ramped up in next year. It is expecting a staff strength of 500-600 each in Dubai and Malaysia in next 24 months. While Dubai offers a permenant tax holiday, Malaysia gives out a 10 year tax holiday for these subsidiaries. It would also have cost advantages for the type of operations the company is planning to set up in these facilities, he added.
Zylog Systems is also working on multiple mechanisms by which it could retain the promoters' shareholding, including methods like issuance of preferential warrant among others, said Srihari. The promoters' share holding in the company is currently the at the level of around 32 per cent, which was at around 43 per cent earlier.
It may be noted that the share prices of the company started falling down since the lenders liquidated the pledged shares in the market. According to reports, the fall of shares started when in October 18, 2012, Karvy Financial Services sold 2.5 lakh shares in a bulk deal in Bombay Stock Exchange. According to the data available with the BSE, the promoters has a total holding of 33.90 per cent in the company as on December 31, 2012, of which around 73.25 per cent is under pledge.
The company is looking at a position where there is zero pledge from the promoters' shares, relieving it from any such risk in future, said Srihari.