Suzlon faces default

FCCB holders reject $220-mn redemption extension lenders may rescue

Suzlon Energy, the world’s fifth-largest maker of wind energy turbines, is caught in a debt default crisis after foreign bondholders rejected the company’s plea for a four-month extension of the redemption date. Suzlon was due to pay foreign currency convertible bondholders $220 million along with interest on Thursday.

Suzlon may face legal action from bondholders (as in the case of Wockhardt and Zenith Infotech), unless it can get a lifeline from Indian banks yet again and pay them back. In June, when the company had to redeem bonds worth $360 million, it managed to get a 45-day extension from bondholders. A consortium of banks gave it debt that time to tide over the crisis.

Lenders have struck a sympathetic note this time around, too. State Bank of India (SBI) Deputy Managing Director S B Nayar said on Thursday that lenders would look at ways to restructure the debt to help Suzlon repay bondholders. “The current default of Suzlon is not very big if one considers the company’s total debt profile. Besides, the company has got a very large order book,” Nayar added. SBI has a loan exposure of about Rs 3,500 crore.

OTHER CASES

• Zenith Infotech had offered convertible bonds worth $33 million at 3% coupon rate in Sep ‘06 due for repayment in Aug ‘11. In Aug ‘07, it offered another tranche of convertible bonds worth $50 million. BNY Mellon, an asset management and securities services provider, is the trustee for the bondholders. As Zenith defaulted on payment, the bank filed a suit against it
• Wockhardt was dragged to court after defaulting on the repayment of its $110-million FCCB in ‘09. It had agreed to pay the bondholders after the Bombay HC directed the firm to clear its payments by Aug ‘11

“Suzlon needs to leverage the REpower balance sheet (its European subsidiary with virtually no debt) and probably in the long run, merge these two operations. That will help increase the profitability of the whole group,” Nayar said.

Kirti Vagadia, Chief Financial Officer of the Suzlon Group, said the company continued to enjoy the support of its secured lenders and he expected an “acceptable solution” at the earliest. The company had an order book in excess of $7.2 billion, Vagadia said.

Suzlon’s business has been hurt by a slowdown in the wind energy business and the company reported a consolidated loss of Rs 850 crore in the first quarter FY 2013. The company’s revenue grew 10 per cent but losses widened at both the operating and net level due to high interest cost and a fall in margins.

Suzlon has total debt of Rs 14,300 crore, including over Rs 5,000 crore worth of dollar debt. The dollar debt comprises fully convertible currency bonds maturing in 2012 (other sets of bonds would mature in 2014 and 2016) and foreign currency term loans worth $350 million.

The company has posted three successive quarters of net losses and has plans to reduce costs, including cutting employment rolls by 20 per cent by the end of the year ending March 31, 2013. The company has been forced to sell assets to pare debt — it exited Hansen in 2011 and sold its China-based manufacturing facility in 2012 for $60 million.