Chart:Suzlon hits rock-bottom as financing options run out

The winds seemed to have stopped buoying Suzlon Energy, a leading wind power company with a significant presence around the globe.

Suzlon's stocks are trading at their lowest level since being listed in 2005. On Friday, the company's stock exchanged hands at Rs 22.85, down 11 percent on high volumes for the second day in a row.

The stock's slide comes one day after its promoter sold 1.86 percent of his stake to raise Rs 100 crore.

It is such a turnaround of fortune for the company, which, when it listed, was touted as the next big thing in power generation. Investors believed it could generate money out of thin air (literally). There is very little left of that dream.

Reuters

Increased competition, and a heavily leveraged balance-sheet (in foreign currency especially), has impacted the fortunes of the company severely.

The fact that the promoter sold his stake and used the proceeds to pump funds into the company has undoubtedly elicited a negative reaction from investors.

Typically, when promoters sell company stakes, they use it for personal purposes. In this case, it was not. For the promoter, there was little choice, Suzlon's stretched balance-sheet leaves it unable to raise funds from alternate sources. The company will also have found it difficult to raise money either from debt or equity.

Suzlon sits on a net debt of Rs 10,544 crore at the end of June. Apart from this, the company sits on $654 million of foreign currency convertible bonds (FCCBs). Worse still is the fact that $246 million (Rs 1,250 crore) of FCCBs are up for conversion in June next year.

The conversion price is Rs 97.26 for the old FCCB of $211 million and Rs 76.68 for another $35.6 million FCCB that carries a coupon rate of 7.5 percent. There is no way these bonds can be converted into shares at these levels given the current scenario, which means the company will have to repay the bonds. That leaves little option for the company to raise funds.

ChartView: The stock's slide comes one day after its promoter sold 1.86 percent of his stake to raise Rs 100 crore.

Raising money looks difficult as the wind power sector has been one of the worst affected by the financial crisis. The US will be withdrawing tax credits for wind turbines. Suzlon Chairman Tulsi Tanti was recently quoted by Bloomberg as saying that wind energy companies are selling goods in the US at cost.

Chinese prices prevail in the US, as a result of which no one, right from supplier and turbine companies to project construction companies, is making any money, he said. The US is the second-biggest market in the world after Europe for wind energy.

Companies have also been hit by a cut in subsidies across Europe and increased competition from Chinese manufacturers.

Looking at these factors, raising equity in a gloomy scenario will be difficult. The options are clearly running out for Suzlon, which is visible in its share price.


Updated Date: Dec 20, 2014 05:15 AM