NCLT route ruled out for Suzlon Energy, lenders to set up escrow account

Barring one bank, all lenders are ready to convert more than 50% of the total debt into new debt

Throwing a lifeline to India’s leading wind turbine maker and debt-ridden Suzlon Energy, lenders to the company have finalised a resolution plan. 

They hope to conclude the process by the month end, which is also the deadline for the resolution.

Sources said barring one bank, all lenders are ready to convert more than 50 per cent of the total debt into new debt. The remaining will be haircut taken by the lenders or unsustainable debt. State Bank of India, Punjab National Bank (PNB), Union Bank and Bank of Baroda are major lenders to the company. Of this, PNB is learnt to have resisted to the resolution plan.

Part of the plan is also to create an escrow account for the company to help complete its pending projects. 

“Lenders would get the returns, and profit margin, if any, will go to Suzlon,” said an executive. The annual amount to be spent from the escrow account would be in the range of Rs 800-1,200 crore.

The lenders seem to have decided against insolvency proceedings against the company and will work on the sustainable debt of Suzlon.

Suzlon is reeling from a debt of Rs 7,000 crore, and was looking for new investors by paring promoter stake. However, no deal went through.

For the quarter ended June 2019, Suzlon reported a net loss of Rs 337 crore and revenue of Rs 833 crore. As of June 2019, the company’s consolidated net term debt, including foreign currency convertible bonds (FCCBs), was at Rs 7,751 crore and working capital debt was Rs 4,000 crore.

Tulsi Tanti, founding chairman and managing director (CMD) of Suzlon Energy, is learnt to have communicated to the Centre that introduction of the bidding regime in the wind power sector worsened the financials of companies, including Suzlon. “During his several meetings with the Prime Minister’s office (PMO), Tanti expressed concern over bidding and also lack of projects which has slowed down the growth of the sector,” said an official.

Suzlon Energy declined to respond to detailed queries on debt restructuring and Tanti’s meeting with the PMO.

The Centre, in 2017, retired the 25-year-old Feed-in-Tariff (FiT) mechanism to award wind projects and introduced competitive bidding. Capacity addition fell to a record low of 650 Mw during the same period. But the tariffs also fell by half from the existing rates to Rs 2.5/Mw. Under the FiT mode, electricity regulator decided the tariff.

India’s wind power project installation stands at 1,650 Mw, half of the targeted capacity for the current fiscal. Also, no new project has been offered in the current fiscal.

During 2018-19, 742 Mw of wind projects were commissioned. This is after the Centre tendered out close to 7,000 Mw wind power projects in the past two years. Wind projects installation was a record high of 5,000 Mw in 2016-17, a year before bidding was introduced.

Wind power producers, which procure turbines from these companies, said this has created a vacuum in the wind energy sector. 

“Policy irregularities and retrospective changes are hurting the wind manufacturing sector in India, especially domestic players,” said the chief executive officer (CEO) of a leading renewable energy company.  In July, Suzlon defaulted on a payment to its bondholders for $172-million in FCCBs, which was due on July 16. The $172 million was part of a bond series first restructured in 2014.

In 2012, Suzlon announced it has entered CDR. The company is likely to exit CDR. This plan was earlier set for March 2017. The timeline was later pushed to the first-half of FY18 and has not been met yet. In earlier attempts at divestment, Dilip Shanghvi picked up a 23 per cent stake for Rs 1,800 crore in Suzlon in 2015. The relief, however, was short-lived and the company slipped back into the red in FY18.