Zenith Info's crisis deepens as revaluation reveals true picture

Zenith Infotech seems to be in a tight spot as its foreign currency convertible bonds default case has taken a new turn. Ernst & Young, independent valuation agency, which had earlier valued Zenith Infotech’s cloud computing business (the only operating business the Company has as on today after it sold-off its Remote Management Services to a US-based PE firm ‘Summit Partners’) for Rs 598 crore, has come up with a fresh revaluation of Rs 152 crore, a massive fall of Rs 446 crore.

This obviously puts the company in a tight spot as the bond holders have now demanded an immediate deposit of Rs 300 as security for their outstanding debt.

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 As per the court

proceedings, it has considered the minimum valuation of Rs 152 crore, whereas the maximum valuation of Rs 211 crore. It was argued that E&Y, in its revaluation report has considered financial performance of the company for the last two quarters. It was pointed out to the court by bond holders’ counsel that the projected growth was 21 percent for last two quarters when E&Y did the first valuation, but in the latest report, it actually has shown a negative growth of 27 percent for the same period.

The counsel mentioned to the court that E&Y was offered an explanation by the Zenith Infotech management that the company’s last two quarters’ sales had been eroded because of the publicity of the winding up issue the company was facing, which further hampered the company’s financial performance.

Ernst & Young was ordered by the Mumbai High Court to re-value Zenith Infotech’s cloud computing assets when aggrieved bond holders had challenged its earlier valuation of Rs 598 crore. After the High Court accepted bond holders’ plea of seeking a fresh valuation, the bond holders’ had appointed an independent valuation agency Grant Thornton, the report of which had challenged E&Y’s valuation and had claimed that the maximum valuation that could be done was Rs 236 crore.

The Grant Thornton report had stressed on the fact that Zenith Infotech which was facing a winding up petition by aggrieved bond holders, could reasonably be valued with a Net Assets Value (NAV) method.