Can debt restructuring deal save struggling Suzlon?

After months of impasse, Suzlon's lenders have approved a debt restructuring deal. The plan effectively divides the manufacturer's total debt of INR 118 billion ($1.58 billion) into sustainable debt of INR 36 billion ($484 million) and INR 82 billion of unsustainable debt.

Suzlon’s O&M business remains a source of income, with a 15GW fleet to service
Suzlon’s O&M business remains a source of income, with a 15GW fleet to service

The sustainable debt will be serviced by Suzlon over the next ten years, according to the plan.

Half of the unsustainable debt portion will be converted into optionally convertible debentures (OCDs) — a form of security — with a ten-year tenor at a coupon rate of 0.1%.

The other INR 41 billion will be in the form of convertible preference shares, giving the lenders the option to acquire a stake in the manufacturer.

Suzlon is also expected to divest some assets and dilute its stake in some of its associated companies.

Although the company has not indicated what assets could be divested, the possible list includes its manufacturing division, Suzlon Global Services; its forging division; its corporate office in Pune, Maharashtra; and some of its overseas assets across Europe, Africa and Asia Pacific.

Lenders, led by the State Bank of India (SBI) will pick up a 10% stake in Suzlon on the issue of shares. However, to activate the plan, those behind it are required to bring INR 4 billion into the company as equity.

Tough year

The debt restructuring deal is good news for Suzlon, which went through a difficult patch in 2019.

The company ended the year with a negative net worth of INR 94 billion.

It installed a mere 51MW in the first nine months of 2019, with just a single 2MW turbine installed in the October-December quarter, the lowest for a company that had dominated the Indian market until 2018.

But the biggest setback was the shrinking of its order book by about 632MW as investors moved away in the face of the uncertainty.  

One comfort for Suzlon is its operations and maintenance (O&M) business, which services nearly 15GW.

The restructured deal will help Suzlon pump capital to fuel its operations and marketing efforts, which were at a standstill for nearly a year.

With working capital in hand, the company can also start executing the existing order book of 865MW.

Market share

The key challenge for Suzlon will be to recapture lost market share from global players such as Siemens Gamesa, Vestas and GE Renewable Energy, which have gained a foothold in the Indian market.

A positive development for Suzlon is the recent announcement by the federal government to remove tariff caps from the auctions.

As a result of this move, developers are expected to bid for projects in states such Rajasthan, Karnataka, Maharashtra and Madhya Pradesh — areas where Suzlon has a competitive advantage in the form of land banks, local contacts and an experienced team.

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