Suzlon headed for CDR, lenders grapple with terms

Inclusion of foreign currency convertible bonds in debt recast a key factor

Lenders to the debt-laden wind energy company, Suzlon Energy Ltd, have begun examining the option of taking the company to corporate debt restructuring (CDR) for recast of loans worth Rs 13,000 crore. This is aimed at avoiding a hit on the banks' balance sheets.

A senior executive of a public sector bank said SBI Caps, the capital market subsidiary of State Bank of India, the lead lender, had preliminary discussions with the CDR cell to refer Suzlon for debt recast.

Besides domestic loans, some Indians lenders having branches abroad face an additional burden. They have issued credit-linked notes (CLNs), a sort of credit insurance, for foreign currency convertible bonds (FCCBs) of the company. So in the event of any default by the company in making payment, it is the CLN issuers who have to pay up.

TROUBLE BLOWING

• The Tulsi Tanti-promoted wind energy company is reeling under high-cost rupee debt of Rs 14,000 crore 
• Its woes have increased after bondholders rejected its request to extend the time to redeem foreign currency convertible bonds (FCCBs) of $221 million (Rs 1,160 crore), which is due to mature this month
• SBI officials had said the current default (on FCCB) was not "very big if you consider the company's total debt profile" 
• If the finances were set right, the company could attract other investors also, an SBI official said

FCCBs are a type of bonds that can be converted into equity at maturity. If the share price of the issuer has fallen since, the investor could ask for redemption of the bonds in cash. The executive, who declined to be named, said banks had to decide on including FCCBs also in the CDR package. There is a precedent to this. In the case of the pharma company Wockhardt Ltd, which went for CDR in 2009, lenders had made FCCB exposure a part of the package. SBI, Bank of India, Bank of Baroda, IDBI Bank Ltd, Union Bank of India have branches abroad.

The Tulsi Tanti-promoted company is reeling under high-cost rupee debt of Rs 14,000 crore. Its woes have increased after bondholders rejected its request to extend the time to redeem FCCBs of $221 million (Rs 1,170 crore today), which are due to mature this month.

An SBI official said the current default (on FCCB) was not "very big if you consider the company's total debt profile".

The company has got a very large order book (Rs 15,000 -20,000 crore) and a lot of the investors were interested in the company. If the finances were set right, the company could attract other investors also, said another SBI official, who also requested anonymity.

The company will have to negotiate with other bondholders and arrive at a settlement and this could impact its cash flows.