Investors claim Zenith Infotech FCCB default more than $85 million

The story of IT services provider Zenith Infotech's default on its dollar convertible bonds seems to be getting bigger and murkier. Investors claim IT provider's default could now be in excess $85 million instead of the $33 million as it originally submitted to the stock exchanges because of a cross default exchange clause, which is part of the bond agreement.

A division that was spun off to a group company and in which US-based Summit Partners announced an investment is also muddying the issue with hedge fund QVT and a few shareholders taking Zenith Infotech to court seeking disclosure of the full value and structure of the deal.

A representative of QVT Fund confirmed that payment on the remaining bonds raised by Zenith Infotech has also become immediately due taking its obligation, including the premium, to over $85 million. Zenith Infotech raised two lots of foreign currency convertible bonds - one for $33 million which was due on September 21, 2011, and a second tranche of $50 million, which was due for repayment in August 2012.

Under the cross default clause, which is a feature in many bond agreements, all dues to bondholders become immediately payable if the company defaults on $1 million or more of debt. "We have accelerated bonds for immediate payment," the QVT representative said. QVT, one of the bondholders which moved a winding petition against pharma firmWockhardt on a similar default, holds about a fourth of Zenith Infotech's FCCBs.

The QVT representative also said Zenith Infotech has not been in touch with it. "The company has had no discussion whatsoever with QVT regarding the re-structuring or extension of maturity of the bonds. We are not aware of any efforts by the management to contact QVT," the person said, adding, "We hold a majority in both the $33-million and $50-million FCCBs."

Last week, Zenith Infotech had said 'it was and in negotiations' with bond-holders to extend the time for repayment, in a filing to the stock exchanges last week. When contacted by ET, Zenith Infotech chairman and director, Raj Saraf, said in a text message, "Our company solicitors have advised us to currently refrain from making press statements, as the matter is sub judice."

Two days ago, Zenith Infotech CEO Akash Saraf was quoted in a well-known blog MSPmentor.net for managed services providers and re-sellers, as saying in an open letter, "We are actively discussing our debt obligations with our bond-holders. We are optimistic that the process will result in financial terms that are acceptable to everyone. Our ongoing operations are not affected by this."

Mspmentor.net also quoted Michael George, CEO of Zenith RMM, a company to which Zenith Infotech spun off its managed services division, as saying Zenith RMM is a separate independent company from Zenith Infotech.