Suzlon's Bondholders Let The Opportunity Pass
After 45-day extension redeemed earlier due FCCBs of $360 Mn.
In a bond holder meeting held yesterday, Suzlon could not manage to attract attendance creating suspense on it’s ultimate ability to rollover the FCCB repayment crisis.
This meeting expected passage of a 'solicitation offer' and extension of repayment period. The next short grace period ends on 18th Oct 2012, for the cumulative $200 Mn FCCB repayment, with no resolution in sight.
Of the total $566 Mn loans that were created in 2007 and 2009, $360 Mn was repayed earlier in June this year by selling wind farm assets in India for $40 Mn & its Chinese subsidiary for $ 60 Mn.
SBI Caps was the lead manager for the last round with 12 banks including two private banks that were involved in the raise. The same banks are also current lenders and they included State Bank of India, Central Bank of India, Bank of Baroda, IDBI Bank and private banks like ICICI Bank and Yes Bank.
Bond yield on Suzlon’s 2016 debt rose 35.7 basis points to 35.4% recently, its highest since Sept. 27, indicating highest risk perception. It has surged 9.3% this year, compared with 4.9% for similar-maturity debt in Denmark’s Vestas Wind Systems A/S. (VWS).
Suzlon last month filed its own lawsuit against a unit of Edison International (EIX) for disputing the February due date for payment of turbines supplied to an Illinois wind farm.
Suzlon hasn’t satisfied the conditions necessary to trigger payment in February, replied Edison International spokesman.
To complicate the matters Multi-Fix, which relies on Suzlon for 5% of its sales and also supplies General Electric Co. and Japan Steel Works Ltd. (5631), is preparing to sue the company to recover its dues
Apart from specific events like these, the sector itself is under distress, SBI had announced provision of funds to tide over the situation. World’s 3rd largest player in this space , Xinjiang Goldwind Science Technology, similarly received $5.5 billion credit facility from China Development Bank.
The confident management had until recently insisted that no further fund raise may be required for the oct repayment.
The suzlon troubles are related to bursting of global bubble in alternate energy assets starting with bankruptcy filling of (Solyndra, that received $567 Mn of government loans) within months of receiving assistance from US government during the credit crisis. The resulting skepticism has persisted and spread from carbon credit to solar power.
In 2007 they started acquiring REPower, raising the loan when the USD/INR moved from R39.17 to R57.14. Result of this was the huge outlay in increased interest rate costs.
After its acquisition, the group’s revenue from Europe surged to 44% from the previous 14% and it reduced dependence on the American market.
Yet the acquisition of REPower has not been very fruitful due to adverse currency movement – going forward the rupee seems to be gaining and so does the gains from the acquisition.
Wind Energy Distress
Some other players in trouble include Vestas (Denmark) - in talks with two banks about restructuring debts after drawing a 300 Mn-euro ($379 Mn) credit line - Vestas has debt of almost 1.2 Bn euros, according to Bloomberg data.
Gamesa (Spain) – regained operating profitability and debt reduction through strong cash inflow – Debt/equity of 1.09.
Suzlon – Some positives that may help it cross over.
-Revenue of R4747Cr/$859 Mn – 10% revenue growth YoY.
-Strong orderbook – R39,700 Cr/$7.2Bn
-‘Project Transformation’ launched – to reduce annual Opex and manpower cost by 20% by end of this year.
-Repaid debt of R250 Cr in Q1 FY13, new debt raise of $300 Mn in July bearing lowest interest in the group’s debt basket – interest rate reduction of 2.5% from key senior lenders.
-Suzlon gets more than 50% of its orders from Europe – orders of 276 MW in June-July months.
-Suzlon has given a guidance for FY13 for turnover of Rs 27,000 crores to 28,000 crores with 6% EBIT margin.
Chinese firm Ming Yang Wind Power bought significant stake in Global Wind Power from Reliance Capital. Regen Powertech raised R100 Cr from IDFC, MCap Advisors cutting promoter’s stake.
Going forward the company which has faced a recent let down from the bondholders side for extension, it looks like more debt raising (high probabilities at higher interest rate given its high leverage and mounting debt amount) or asset sale (which is asset would be sold is a hard guess) is unavoidable.
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