Lenders agree to raise wind energy firm Suzlon Energy stake to 35%

Promoters' holding to fall to 12.7% as creditors convert loan into equity

Indian lenders have approved a plan by wind energy firm Suzlon Energy to convert part of its debt of around Rs 4,100 crore into equity that would see the creditors’ stake rise to 35 per cent, while promoter Tulsi Tanti’s stake would fall to 12.7 per cent from 16 per cent after the dilution.

REC, a power sector lender, would pick up a 4.3 per cent by giving fresh loans to Suzlon that would be used by the firm to refinance older loans. Suzlon’s lead bank, State Bank of India, approved the refinancing proposal on February 16 and other existing lenders are in process of obtaining approval from their respective authorities. 

According to the proposal, the company’s entire outstanding optional convertible debentures (OCDs) worth Rs 4,100 crore, will be converted into equity shares, thus giving the lenders an upper hand.

The refinancing proposal envisages issuing warrants to REC on a preferential basis that will be converted into equity later. Public shareholders’ stake will fall to 36.4 per cent after the transaction is completed.

Suzlon Energy shares rose 3.5 per cent on Wednesday to Rs 9.7 a share — giving it a market valuation of Rs 8,850 crore.

In June 2020, Suzlon and some of its subsidiaries – Suzlon Global Services, Suzlon Power Infrastructure, Suzlon Gujarat Wind Park, and Suzlon Generators – had signed a debt restructuring agreement with a consortium of lenders led by the State Bank of India in accordance with the Reserve Bank of India’s June 7, 2019, circular that provided relief to stressed companies.

The resolution plan was effective from June 30, 2020, and it envisaged that Suzlon would provide an exit to existing lenders with respect to the restructured facilities. 

Hence, Suzlon submitted a proposal for the refinancing of the outstanding restructured facilities of existing lenders that included full repayment of part of their debt by taking a fresh loan from REC, sale of assets, conversion of OCDs, and compulsorily convertible preference shares issued by Suzlon to existing lenders into equity shares of Suzlon.

The bailout by REC comes at a time when Suzlon is fighting a battle for survival after it was hit hard by the pandemic in FY21, when it closed the year with a loss of Rs 400 crore on revenue from operations of Rs 1,000 crore. In the December quarter, the company made a loss of Rs 182 crore on revenues of Rs 1,001 crore.

In its proposal to lenders, the company said under the existing structure, it cannot sustain any bad cycle in future and it will be very challenging to meet the total debt obligations without growth.

In its Q3 results, the company said  it continued to incur losses and the group’s net worth was a negative Rs 3,356.40 crore as at December 31, 2021, and it also had an obligation to repay the principal amount to the lenders, including Rs 450 crore falling due on June 30.

The company said these events cast a significant doubt on the group’s ability to continue as a going concern and sought a one-time settlement with the banks. The company plans to meet the financial obligations through various options such as cash flows from operations by way of execution of the pipeline of orders in hand, future business plans, realisation of trade receivables and financial assets, and sale of non-core assets.