Suzlon counts on REpower to repay $566 million foreign bonds…

 

Update by Economic Times on Suzlon’s FCCB payment…

Life has come a full circle for Suzlon Energy. Riding on chairman Tulsi Tanti's insatiable growth aspirations, the Pune-based company bought a majority stake in German wind turbine maker REpower for 1.3 billion in an intense, five-month long bidding war with French energy giant Areva in May 2007. By 2011, Tanti had bought 100% in REpower by spending another 500 million.

 

Much of this acquisition was funded by money raised through foreign currency convertible bonds (FCCBs). Now it's payback time, with the first tranche of FCCBs set to mature next month. And REpower - the biggest reason for his high leverage today - may be his best bet to get out of the debt trap he finds himself in.
"REpower is the reason why Suzlon raised money through FCCBs," says Raj Kothari, a London-based bond trader at Sun Global Investments, which owns Suzlon bonds. "And REpower holds the key to resolve Suzlon's repayment problems," he adds.

 

Suzlon needs $360 million in June and $206 million in October, totaling $566 million (Rs 2,995 crore) for redemption of FCCBs issued five years ago. Suzlon's high leverage-consolidated debt is double of equity-and repeated losses have left little room to organise the large amounts of cash needed to redeem the bonds. On the other hand, REpower is sitting pretty on cash of $247 million, a solid brand equity and a better operating performance.

In a report dated 26 March, HSBC notes that there are covenants that limit free transfer of cash from REpower to parent Suzlon, but anticipates that the German turbine maker could provide Rs 610 crore - Rs 110 crore as dividend and the balance as advance. This will be precious for Suzlon in his quest to repay FCCB holders, especially after the US customer Edison Mission Energy said it won't pay before February next year. Suzlon was hoping to recover $211 million from Edison by June, when the first tranche of FCCB redemption is due, says Ankush Mahajan, research analyst with Mumbai-based KR Choksey. The delay can prove disastrous, and REpower may be the only immediate lifeline for Suzlon.

The Suzlon management is reluctant to divulge details on the role REpower can play, perhaps due to the covenants imposed by the German firm's lenders. "Suzlon and REpower are now parts of one company; we have to balance interests of many stakeholders, and will ensure that we will take the best decisions in the interest of the Suzlon group," says Suzlon CFO Kirti Vagadia when asked what role REpower could play to help Suzlon repay FCCB holders.

Suzlon is weighing various options to repay the FCCB holders, says Vagadia, who took over as CFO in March from Robin Banerjee. These include talking to a few bulge bracket investment banks for funding; and also to Indian banks for support as a backstop, added Vagadia in a written reply to ET's queries.

"Suzlon continues to make progress on the sale of non-critical assets; we announced a sale for approximately $40 million just the other day. And the company is evaluating a high-yield bond instrument offering in the range of $300 million to $500 million," says the CFO.