Zenith Infotech, the cloud computing company that works closely with MSPs, has confirmed that it defaulted on its $33 million foreign currency convertible bonds (FCCBs), which were due Sept. 21, according to Reuters. Zenith Infotech remains in negotiations with the bondholders to extend the time for repayment, Reuters added. So what exactly does this mean for managed services providers that work with Zenith Infotech? Here’s some perspective.
First, let’s not press the panic button. Defaulting on a bond payment certainly isn’t good news. But I previously worked for a major media company that sat down with its bondholders, discussed an upcoming payment that couldn’t be met, then renegotiated the debt to the satisfaction of the bondholders. It was a stressful situation, but customer service remained strong throughout the negotiations.
Still, I don’t have firsthand knowledge of Zenith Infotech’s current situation — so some facts about the situation remain beyond my reach. I’ve requested comment from Zenith Infotech’s U.S. and India offices but have yet to receive a reply. That said, I believe Zenith Infotech continues to march forward with its SmartStyle cloud computing and business continuity strategy. If/when I receive an official comment from Zenith Infotech, I will return with a new blog post or comment area update.
Zenith RMM
Meanwhile, I also have questions for Zenith RMM, which spun-off from Zenith Infotech in September. As part of that process, Summit Partners — a private equity firm — invested in Zenith RMM. Published reports in India suggest Zenith Infotech has “received all monies due from Zenith RMM, LLC except for the amount to be held in escrow, part of which the Company plans to utilize for partial repayment of FCCBs [bonds].”
I am not suggesting that Zenith RMM will be impacted by Zenith Infotech’s attempt to renegotiate its debt with bondholders. But I am reaching out to Zenith RMM for comment and potential perspective on the situation, so that MSPs have a clear view of situation as they mull their RMM (remote monitoring and management), NOC and cloud services strategies.
Over the past year, Zenith Infotech shares have fallen from 271.95 to 83.90 on the Bombay Stock Exchange. In a statement to the exchange, Zenith said that company managers “have not in last one year bought or sold any shares of the Company.” Read between the lines, and Zenith is clearly stating that company insiders were not dumping shares ahead of the current bond renegotiation.
Separately, Zenith Infotech has a sister company called Vu Telepresence. I don’t know if Vu has a financial relationship with Zenith Infotech, but I’ve sent Vu a note seeking potential comment as well.
If/when I have info to share I’ll be back with updates.
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Posted In: Asia | Finance | North America | Partner Program | Remote Monitoring & Management Software
Tags: FCCB | Foreign Currency Convertible Bonds | NOC Services | Remote monitoring and management | RMM Software | Zenith Infotech Bond Payment | Zenith RMM
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Debt matters. With the economy generally struggling and possibly in a double dip recession, partners need to study the financial stability of their vendor partners closely. Companies that are heavily indebted often will make erratic and unfriendly actions to significantly cut costs, boost cash flow, and avoid default. Often channel partners are left holding the bag, as service levels are cut and other partner benefits are curtailed. In the worst case scenarios, bankruptcy can leave customers and partners high and dry.
All partners should study the financial viability of their vendor partners closely.
zeniths woes continue, now the bond holders have filed a petition to block zenith selling assets that presumably are material to the bond holders decision to lend in the first place. The petition is also attempting to halt the spin off of the RMM business. On the face of it there are some more questions that still need to be answered, in particular why the proceeds of the RMM spin out were not used to settle the dept and why this sale was not approved by bond holders in advance.
http://articles.economictimes.indiatimes.com/2011-10-15/news/30283571_1_zenith-infotech-fccb-holders-qvt
Ted@1: I agree with your key point — all partners should study the financial viability of their vendor partners closely. But… In the managed services market that can be challenging since so many companies are privately held. So pinpointing profitability and debt can be a challenging tast.
Rob@2: Yes, there are reports that the Zenith Infotech bondholders are upset about the Zenith RMM spin-off. I’ve spoken directly with Zenith RMM CEO Michael George, and he stats that the spin-off is a done deal and Zenith RMM is its own company now. That said we will continue to track what bondholders are saying.
Ted, Rob and Readers: We encourage healthy dialog in our comments areas. But I’d ask everyone who posts a comment to disclose your company affiliations. In this case, readers should note that Ted and Rob each work for companies that, in some ways, compete with Zenith Infotech. Ted with eFolder and Rob, I believe, with GFI Software.
Comments are welcome but company affiliations really need to be disclosed so that readers can understand the deeper potential context of each post.
-jp