Suzlon bonds rally most in two years on redemption

Suzlon Energy Ltd (SUEL) handed its convertible bondholders the biggest monthly gain in more than two years after the country's largest wind-turbine maker redeemed $360 million of debt and averted default.

The company's $175 million zero-coupon note due July 2014 rallied eight per cent in July, the most since December 2009, pushing yields down to 29.1 per cent from 32.7 per cent, prices from Elara Capital Plc show. Its debt due October 2012 gained 2.3 per cent. India's equity-linked notes rose one per cent last month, underperforming the two per cent return on South Korean and Hong Kong bonds, Barclays Plc indexes show. Comparable US securities returned 0.8 per cent.

Suzlon shares have jumped 8.8 per cent since July 27, when the Pune-based company repaid bondholders with the proceeds from bank loans and asset sales amid intense competition and an industry supply glut. The redemption came on the last day of the 45-day grace period it had sought to avoid default after sales slowed due to the debt crisis in Europe. Sun Global Investments Ltd and Acropole Asset Management are among holders of the turbine maker's debt.

"There is reason to be a bit optimistic on Suzlon after the spate of bad news," Raj Kothari, a convertible bond trader at Sun Global in London, said in a July 30. "Confidence is restored to some extent."

Suzlon redeemed the convertible bonds after borrowing $300 million from 11 lenders including State Bank of India and ICICI Bank Ltd, according to a person familiar with the matter.

Asset sales
Chief Financial Officer Kirti Vagadia had said on June 25 the turbine maker expects to raise $60 million by selling a factory in China and, on July 26, Suzlon announced the completion of a sale of wind-farm assets in India for $40 million.

Suzlon posted three straight years of losses and is seeking to reduce debt and increase orders. The wind-power equipment maker reported a fourth-quarter loss of Rs 300 crore ($54.1 million) on May 25, as sales declined and finance costs increased. The company is due to report first-quarter earnings this month.