Subex had borrowed heavily during the bull run of 2007, when liquidity was abundant, and its share prices were at record highs. However, during the last three years of the slowdown (2009, 2010 and 2011), the company’s net worth eroded but debt did not subside.

“In the good times of 2007, during the bull market in India, companies had borrowed beyond their means either to finance large acquisitions or repay large borrowings. However, when the bear market emerged, the valuations of many companies disappeared, but not the debt,” Jagannathan Thunuguntla, Equity Head at brokerage firm SMC Capitals, said.

CEO yet to be named

Last week, Subash Menon, who had founded the company in 1992, resigned as its Managing Director and Chief Executive Officer as the company was grappling with mounting debt. However, he will continue as a non-independent director., The Bangalore-based firm is yet to name its new chief.

In July, Subash Menon had stepped down as Chairman of the company, while continuing to be its Managing Director.

“With the restructuring of the foreign currency convertible bonds (FCCBs) complete, I have decided to focus on my other business interests and hence this move,” the company quoted Menon in a statement.

The heavy borrowings were made to fund its acquisitions. In 2006, Subex had acquired the UK-based Azure Solutions for more than $140 million, which was one of its major buys. The following year, it acquired Canadian telecom solutions provider Syndesis for $164.5 million. With the fall in valuations, debts were serviced using FCCBs. In July, the company – which had posted a net loss of Rs 4 crore in the June quarter – converted $127.72 million of FCCBs after it received approvals from the majority of its bond-holders.

In January 2007, the firm’s share price touched an all-time high of Rs 803 and its market cap soared to Rs 2,500 crore. Last week, when the share prices fell to a record low of Rs 10 a share, the company’s market cap dipped to just Rs 210 crore.

“The company came under a lot of financial stress, but fundamentally it is a strong organisation and there is nothing wrong with it. Menon’s equity in the company fell into negative territory, and in a way it was a correct decision for him to step down,” a company official, who declined to identify, said.

Multiple attempts to reach Subash Menon were also not successful.

BILLIONAIRE INVESTORS

“Basically, there is an overhang of FCCBs. I don’t think there is any other issue with the company and some of the top investors and high networth individuals have investments in the company,” Kishor Ostwal, Chairman of brokerage firm CNI Research, said.

As of July 17, billionaire investor Rakesh Jhunjhunwala was holding a 1.8 per cent stake in the company.

“It might take a couple of quarters for the company to bounce back and post profits,” Ostwal added.

Last week, Elara Capital, an investor in the company, offloaded its entire 1.43 per cent stake.

According to an analyst with a leading brokerage in Mumbai, revenue fraud management is too niche a segment. “Billing solutions or roaming solutions would give the company a wider access to the telecom markets, especially after the 2G spectrum auction and complete rollout of 3G services,” he added.

Two weeks before stepping down, in an internal letter to employees Subash Menon had stated that now that FCCBs have been fixed, it was time to buckle down and concentrate on business.

On Monday, Subex shares closed up 0.61 per cent at Rs 13.27 on the BSE.

>rajesh.kurup@thehindu.co.in

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