Zenith Infotech Defaults On Bonds

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IT services firm Zenith Infotech could be in default in excess of $80 million in dollar convertible bonds, according to a report by the Times of India.

Late last week, reports surfaced that Zenith Infotech had defaulted on $33 million in bonds but the company could face an additional $50 million in bonds, originally due for repayment or conversion August 2012, due now plus premiums because of a "cross default exchange clause" in which all payments to bondholders become immediately due if the company defaults on more than $1 million in debt, according to the Times of India.

A representative for QVT Fund, which holds the bonds told the Times of India, "We have accelerated bonds for immediate payment."

Zenith Infotech CEO Akash Saraf penned a letter to customers and vendors last Friday in which he maintains Zenith Infotech is "financially solvent, strong and stable. Our customer base for BDRs, MirrorCloud and SmartStyle continues to grow tremendously."
Saraf acknowledged in the letter that Zenith Infotech has defaulted in payment obligations to "certain foreign-currency convertible bond holders," but added, "the news coverage did not provide an accurate picture of the company’s business and financial stability."

The letter did not detail how much the company owes on or how it plans to repay its debtors.

"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," Saraf said. "We are committed to continuing to serve your needs."

Meanwhile, in late September, Zenith Infotech sold off its remote monitoring and management business to investors, which spun off that business into a new company, Zenith RMM, in which Saraf serves on the board and Zenith Infotech retains a stake.

On Monday, Zenith RMM CEO Michael George sent his own letter to partners that appears to try to distance Zenith RMM from Zenith Infotech.

"Zenith RMM did not […] acquire any of the BDR [backup and disaster recovery], ARCA [Advanced Reocvery and Continuity Appliance], SmartStyle or MirrorCloud products, or any of the engineering or support teams associated with the NOC operations supporting those products," wrote George. "If you are experiencing problems with the SmartStyle or MirrorCloud products, please contact your Zenith Infotech Account Management team as only they can resolve your issues."

Zenith Infotech, which trades on the National Stock Exchange of India, saw its stock drop another 5 percent or 3.85 rupees Monday to 73.95 rupees, the latest in a series of precipitous declines. On Sept. 23, Zenith's stock closed at 194 rupees and was trading for more than 200 rupees as recently as Aug. 19.

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