India Ratings and Research (Ind-Ra) has affirmed Rolta long-term issuer rating at 'IND BBB'. The outlook is stable. Ind-Ra has also affirmed Rolta's Rs 2,240 million long-term loan (future lease rental) at 'IND BBB' with a stable outlook.
The ratings continue to reflect Rolta's blue-chip tenants at its Gurgaon-based commercial property Rolta Tower. This property has a total leasable area of 4,20,000 sq ft, which is fully and equally occupied by three tenants. One of the tenants has been occupying the space for over four years while another one has been a tenant for over a year. Also, investments made by the tenants in office furnishings provide some stickiness to the relationship between Rolta and its tenants.
Rolta, being a strategic investor in Rolta India ('IND A+'/Negative; with around 40% equity stake), receives dividend income. In FY15, it received Rs 146.3 million as dividend income. This was partly offset by a substantial outflow of Rs 191.6 million in FY15 as dividend payments to Rolta's shareholders. However, the company is likely to reduce dividend payments substantially, according to the management. Rolta has also provided a corporate guarantee of Rs 870 million to its 100% subsidiary Rolta Power which has recently commenced production of solar photo voltaic modules. Hence, there could be cash flow support offered to Rolta Power. Ind-Ra expects that at least 50% of the dividend income and royalty income will be available for debt servicing in the event of a vacancy or reduction in the average rental rates.
The ratings are constrained by the concentration risk and renegotiation risk faced by Rolta. Since there are only three tenants occupying two floors each, there is high tenant concentration risk. Also, for one tenant the lock-in period already expired in December 2014 and for another one, it will expire by end-August 2015. Hence, renegotiation risks are high in the short term. The ratings are also constrained by the company's high revenue dependence (FY15: 22%; FY14: 26%) on the dividend income.
