BT Buzz: Debt-laden Suzlon Consider Selling Stake To Stay Afloat

Wind energy major Suzlon’s financial difficulties worsen. Chairman and CEO Tulsi Tanti and his family are considering the possibility of losing management control. The Pune-based wind company, which had consolidated net term debt of Rs 7,761 crore and working capital debt of Rs 3,380 crore at the end of 2018-19, is struggling to raise funds for make convertible bond payments worth $ 172 million. next month.

Recent news reports indicated that the company was in discussions with Canadian investment firm Brookfield Asset Management over a stake sale after its attempts to sell stakes to another large wind energy company failed to materialize. . Apparently, Brookfield is considering a controlling stake in the company and discussions are underway for a single settlement plan with creditors to restructure outstanding bank loans. Reports indicate that Brookfield is expected to make a firm offer by the end of this month. An insider from Suzlon said the company is in discussions with several investors to resolve its financial issues. A spokesperson for Suzlon said management was unable to comment on the matter as trade talks are underway to reduce the debt.

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“We remain committed to debt settlement and optimizing the costs of executing our backlog. We remain very focused on accelerating execution in the coming quarters,” said Kirti Vagadia, Group Chief Financial Officer. Suzlon, while announcing the March quarter results for 2018-19. . JP Chalsani, CEO of the group, said in a statement that the company is committed to reducing debt and is progressing well in the strategic initiatives undertaken by the team.

In FY20, Suzlon must repay Rs 1,928 crore, Rs 835 crore in FY21, Rs 926 crore in FY22 and Rs 4,483 crore in FY23 and beyond. But, the biggest problem is that despite an impressive order book of more than 2 gigawatts (1320 MW of firm orders and 700 MW PPA signed and ratification awaited and letter of intent for an additional 100 MW), its finances are in a bad situation. desperate. For 2018-19, the net income was Rs 4,978 crore, well below the Rs 8,075 crore a year ago, mainly due to low volumes. For the same period, net losses amounted to Rs 1,527 crore in FY19, much worse than Rs 377 crore a year ago. Additionally, in April of this year, Care Ratings downgraded Suzlon’s ratings on its long-term banking facilities to D from BB.

Meanwhile, promoters’ stake in the company fell to 19.82 percent. In addition, 76.34 percent of the promoter’s interest is pledged or encumbered. Currently, billionaire and Sun Pharmaceuticals promoter Dilip Shanghvi is the largest shareholder in Suzlon, who acted as a white knight to help the company in 2015. Shanghvi and his family bought 23% stake in Suzlon for Rs 1,800 crore ($ 258 million) when Suzlon was in deep financial trouble. It helped Suzlon stay afloat. In a matter of weeks, its market capitalization reached over Rs 10,000 crore. As of June 12, Suzlon’s market cap was only Rs 2,633 crore.

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Persistent problems

The current situation is already seen for Suzlon. The company defaulted on its $ 221 million Convertible Currency Bonds (FCCB) in October 2012 despite unsuccessful attempts with FCCB holders for a four-month extension. The company faced a similar crisis of shortage of working capital to fulfill a large pipeline of orders (then nearly $ 7.7 billion and the majority of orders came from the sold subsidiary REpower). He had recorded losses for three consecutive years. Despite some repayments, the company’s debt had reached over Rs 10,000 crore. This forced the company to seek a bailout from lenders via Corporate Debt Restructuring (CDR).

Within months, a consortium of 19 bankers approved CDR’s proposal for national loans worth Rs 9,500 crore with a 10-year repayment plan at a reduced interest rate. The lenders have also granted a new working capital loan of Rs 1,800 crore with an interest provision worth Rs 1,500 crore to be converted into equity. CDR also mandated Suzlon to raise Rs 2,200 crore by selling non-core assets such as component manufacturing subsidiaries and non-critical assets such as SE Forge, SE Electricals and some units in China, in addition to the shutdown. of a unit in Pondicherry. The Hansen gearbox manufacturing unit, which was purchased in 2007-08 for 465 million euros in cash, was sold in installments to raise more than $ 1 billion to pay off debts. In January 2015, Suzlon sold its main asset, Senvion SE (formerly REpower) to the American private equity firm Centerbridge Partners for 1 billion euros (then more than Rs 7,200 crore). Even the takeover of REpower did not go smoothly and Suzlon had to wait many years to take control of the company.

REpower was formed in 2001 by the merger of four wind turbine companies in Germany. Fritz Vahrenholt, German politician and former minister, was the CEO of REpower at the time of the takeover. Areva and the Portuguese Martifer have acquired stakes in REpower. Tanti had waged a bidding war for more than five months to acquire the company for 1.35 billion euros (around Rs 7,314 crore) in order to gain management control of nearly 75 percent. By this time, Suzlon’s consolidated net had swelled to over Rs 17,000 crore. Vahrenholt left REpower in 2008 and Suzlon managed to increase his stake, but successive CEOs and many senior executives came out one after another. Suzlon had to downsize its operations and focus more on the domestic market than on aggressive globalization.

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Big drop from the top

The fall of Suzlon, which became the world’s fifth largest wind turbine maker with revenues of over Rs 26,000 crore in 2008-09, is a classic case of aggressive global expansion without reading future business prospects. Tulsi Tanti, who started as a textile entrepreneur in 1995, completely diversified into the wind energy sector in 1999-2000. It quickly received orders from the United States and expanded into various global markets, in addition to maintaining a booming business in India. In 2005 the company went public and raised Rs 1400 crore. Rich in funds, Suzlon went on a shopping spree to become a world leader in wind turbines.

Suzlon acquired Hansen Transmissions in Belgium and REpower Systems in Germany and moved its headquarters to Amsterdam, which was later moved back to Pune. She managed a strong order book and everything was fine until the global financial downturn in 2018. Soon commodity prices, including steel prices, rose and many orders were postponed. News has poured in about the Suzlon blades cracking at some US-based wind farms. The company had to execute a $ 100 million blade modernization program. The 2008 global financial crisis sucked up much of Suzlon’s fortune. In 2004-05, the United States was pushing for onshore wind power and Suzlon set up a manufacturing plant in Pipestone, Minnesota. It has partnered with John Deere Wind Energy (JDWE) and Edison Mission Group (EMG) to set up numerous wind farms in the United States. These too got into trouble. The persistent financial burden and liquidity issues forced the company to explore other options such as external investment from people such as Dilip Shanghvi.

Suzlon management says the current goal is to reduce working capital expenses and debt by 30-40% in the near future. However, whether founder Tanti will remain the owner of the business is a big question mark.

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