Suzlon's Senvion sale to shrink its size by 65%

The sale will, however, help firm to keep its head above water by repaying tough lenders and focusing on Indian markets

Suzlon Energy’s reported sale of German subsidiary Senvion to private equity fund Centerbridge will reduce the Pune-based company’s annual sales in India to about Rs 3,000 crore. For FY14, Senvion contributed Rs 13,759 crore, or 65 per cent of the consolidated revenue.

The sale will, however, help the company repay lenders and focus on the Indian market, say analysts. The sale follows a series of debt defaults by Suzlon, which took the company to near-bankruptcy, as demand for its products collapsed and finance costs soared.

In 2009, Suzlon acquired Senvion, earlier known as REpower, for ^1.5 billion. However, it was unable to make money from the acquisition, as complaints of faulty products increased, resulting in lower sales and profits. The company has not recorded profits since 2012-13. In 2012, Suzlon defaulted on its foreign currency bonds. Later, these were restructured, with most lenders taking a haircut.

“With the Senvion sale, the company has managed to get out of a financial mess. What Suzlon will be left with is a big question, as its domestic operations are not a big deal,” said an analyst.

On Tuesday, Suzlon’s shares at Rs 17.64 on the BSE, up 0.9 per cent, as investors waited for an announcement on the sale.

“The Suzlon’s REpower takeover did not go well from the beginning. The company took too many loans and mismanaged the takeover. It was like a small fish trying to eat a very large one. No wonder the company soon started defaulting on loans. The sale of Senvion will be like a fire sale,” said the analyst quoted earlier.

In 2013-14, the company paid a finance cost of Rs 2,000 crore and recorded a loss of Rs 3,500 crore on a consolidated basis.

Analysts say with the sale of the German firm, the company will be forced to focus on its India business. After the announcement of the company’s second-quarter earnings, Suzlon Chairman and Managing Director Tulsi Tanti had said through the past two years, the company had focused more on technology and energy reduction because it didn’t have many opportunities to increase volumes. He added the company would now focus on becoming more competitive.