Wall Street Journal: India Technology Debt Is Coming Due
No need for panic. But here’s a trend worth watching as U.S.-based MSPs partner with India-based IT service providers: The Wall Street Journal reports that India-based companies have a “humungous” foreign bond debt coming due. The debt, much of it due in 2012 to 2014, will likely “further decelerate” India’s economy, the Journal reported. Here’s some perspective as MSPs mull the global partner ecosystem.
The Journal’s India Realtime Blog stated:
“Nearly two dozen companies listed on the Bombay Stock Exchange have 245 billion rupees ($4.7 billion) of such bonds maturing before the end of March 2014, according to a recent report by Mumbai brokerage firm Edelweiss Securities Ltd. Some 60% of these loans were raised when the rupee stood at 42 to the dollar. At today’s level, simply paying the original loan would cost the company around 25% more, said the Edelweiss report.
The Journal mentions that Reliance Communications, a large mobile service provider in India, has a $1 billion debt payment due in early 2012. The journal also mentions Zenith Infotech‘s well-documented debt default from September 2011; that situation is now being reviewed by an India court.
Don’t Panic, Do Research
So what’s the key takeaway for MSPs? First, let’s not generalize or overstate the situation. Some — but not all — IT service providers in India have debt coming due. And debt isn’t necessarily a bad thing — especially when it helps to fuel growth. Your job is to thoroughly investigate potential IT partners — both onshore and offshore — before inking partnerships.
Meanwhile, Closer to Home…
A range of MSP software providers have taken private equity investments in the past year. Others are believed to be seeking investors. In essence, the debt discussion isn’t limited to India-based companies. Poke around before you partner up. Ask about a company’s balance sheet, debt ratio, hiring trends, partner ecosystem growth and profitability.
Many privately held companies may dance around the questions. But true partners will pull back the curtain — just a little — to let you know how they’re performing, even if they can’t disclose the full story because of privacy and competitive considerations.