Caught in debt trap, Suzlon sells Senvion for $1.2 bn

New Delhi: Suzlon Energy, one of the world’s largest wind-turbine makers, today announced the sale of its German subsidiary for €1 billion ($1.2 billion) to pare its mounting debt. Suzlon said US-based private-equity fund Centerbridge Partners LP had bought Senvion in a deal under which it stands to earn another €50 million depending on certain conditions.[caption id=“attachment_639701” align=“alignleft” width=“380”]  Suzlon Energy. Reuters[/caption] Proceeds from the sale of Hamburg-based Senvion SE will be used to pare part of the about $2.6 billion debt that was left over from a decade-long expansion and acquisition spree. It hopes to become profitable again in 2016. Suzlon will now focuses on home and high-growth markets, the company said in a statement adding the deal was expected to be completed before the end of March. The company, which suffered India’s biggest convertible-bond default in 2012, has restructured local loans, refinanced international debt and cut the number of people it employs to try to streamline its costs as its business has suffered from weaker-than-expected demand for turbines. Suzlon chairman Tulsi Tanti said the sale was at a “minor loss” but the proceeds from the deal will help reduce borrowings, cut interest burden and free up more capital for projects to help it return to profitability next fiscal. As much as Rs 6,000 crore out of the total sale proceeds of about Rs 7,200 crore will be used to repay part of its Rs 16,500 crore of debt. The balance amount will be used for working capital needs, he said. Suzlon was on a rapid expansion until a few years ago, riding a boom in green-energy investment. But the withdrawal of government subsidies in India and other markets, in addition to the global economic slowdown, knocked the wind out of its business. Its shares reversed initial gains and fell over 7 percent to less than Rs 16 at the close on the BSE. Tanti said it is a “wise” decision to exit the business acquired in 2007 for 1.4 billion euros and constitutes as much 65 percent of the business. “The proceeds will be used for debt repayment thereby reducing interest cost and (augmenting) business growth,” he said. The company was forced to restructure $1.8 billion of debt after defaulting on a $209 million convertible bond redemption in October 2012. At the end of the second quarter of the current fiscal, Pune-based Suzlon had Rs 8,900 crore of local-currency debt and dollar borrowings of $1.27 billion, including working capital loan. “We are pleased to announce this development, which is in line with our strategic initiative to strengthen our balance sheet. The proceeds would be used for debt repayment thereby reducing interest cost and augment business growth,” Tanti said. Senvion SE will give Suzlon licence for off-shore technology for the Indian market. Suzlon had in 2007, bought a 33.9 percent stake in Senvion, then known as REpower Systems AG, after a bidding war with France’s Areva. That deal valued Senvion at €1.2 billion. It bought full control of the firm in 2011. He asserted that he is “happy” at the valuation which is “reasonable” given the current market conditions and at par with peers. Tanti also sought to clarify on the view that the company, which is under corporate debt restructuring process, has sold the asset at a discount. Pointing to 20 percent deprecation of the rupee against the euro over the past seven years, he said: “net-net it is a very minor loss, there is no loss to the company… There is some misunderstanding that there is a loss while selling this company, it is not true”. He said the rupee was trading at 60 to the euro at the time of the deal, whereas now a euro fetches you Rs 72. Some analysts say that by selling Senvion, Suzlon loses one of the biggest revenue and profit centres for the group, which posted a loss of Rs 924 crore in FY14 and Rs 528 crore in the September quarter of this fiscal. “Sale of Senvion is not affecting our profitability. The biggest advantage is that by this deal, our interest cost is reduced and overall debt is reduced and that will help us focus on growth more,” he said, conceding that total balance sheet will get compressed after the transaction. Tanti said Suzlon will save Rs 600 crore in interest cost next fiscal, as against Rs 1,600 crore now, while debt repayment will also free up additional sources of finance. Suzlon, which restructured its debt in January 2012, will pay off Rs 6,000 crore from the proceeds to its 19 lenders led by State Bank of India, Tanti said, adding the remaining Rs 1,200 crore will be deployed for operational purposes on the working capital front. Additionally, Suzlon is also hopeful of a reduction in up to Rs 3,000 crore of debt from the option of converting FCCBs into equity for investors, he said, adding there is a further component of Rs 4,000 crore in low-interest dollar debt for which the company does not have to make any principal repayments till FY19-end. Post deal, Suzlon will be left with only Rs 3,500 crore in debt which will basically be working capital, he said. Tanti said Suzlon has 2,500 customers with over 15,000 mw of operational capacity, from where it will continue accruing service revenues. He said due to financial constraints faced earlier, it is not able to meet expectations of these customers till now, but will now be able to cater to the full demand. PTI