Suzlon sells Senvion to US PE fund for 1 billion euros

Proceeds to help repay debt, fund operations

Renewable power company Suzlon Energy on Friday announced it had signed a binding agreement with US-based private equity fund Centerbridge Partners to sell its German subsidiary, Senvion (earlier known as REpower), for euro 1 billion (Rs 7,200 crore), in an all-cash deal.

The transaction has a future earning potential of up to an additional euro 50 million (Rs 360 crore) and is expected to be closed before March.

Addressing a media conference from Davos, Suzlon Chairman Tulsi Tanti said about Rs 6,000 crore of the sale proceeds would be used to repay debt and the rest would go into funding operations. “With this sale, Suzlon will be able to make a profit in the next financial year. Our interest cost will come down by half and sales volume will go up. Our break-even level has come down and we expect the cost structure to improve further,” he said.

In 2013-14, Suzlon paid Rs 2,000 crore in interest and posted a consolidated loss of Rs 3,500 crore. Senvion contributed Rs 13,759 crore, or 65 per cent, of Suzlon’s Rs 20,402 crore of consolidated revenue; the sale will shrink Suzlon’s size by half.
 

Analysts said Suzlon’s sales and profits had been falling for the past few years. Its finance cost was eating into its revenue, even as demand for its products declined.

According to its deal with lenders, Suzlon is expected to retire Rs 5,000 crore of debt. When contacted, State Bank of India Managing Director V G Kannan said Suzlon would save at least Rs 500 crore annually in interest payments and its debt would fall substantially. “Suzlon has a sound order book and a strong manufacturing facility. This deal will ease pressure on costs and improve profitability,” he said.

This transaction might set the trend for companies facing debt pressure, Kannan added.

On Thursday, Suzlon’s stock declined 7.5 per cent from its previous close to end at Rs 15.91 on BSE.

Suzlon acquired Senvion for euro 1.4 billion in 2009. It was, however, unable to make money from the acquisition as complaints of faulty products increased, which resulted in lower sales and profits. Suzlon has not made a profit since 2012-13 .