No retreat says cash strapped Suzlon -- Fifth largest turbine supplier struggles with severe liquidity crisis

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Speculation in the international press that beleaguered Suzlon is on the verge of collapse "are unfounded," says the company's chief operating officer, Sumant Sinha. The Indian wind power developer and turbine manufacturer is dealing with a severe liquidity crisis sparked by the collapse of the global credit market, he acknowledges, and is struggling to meet its contractual obligations for the purchase of the remaining shares in German turbine maker Repower, held by Portugal's Martifer. But it will come good, he insists.

Suzlon, traded on the Bombay stock exchange, already owns 73.71% of listed Repower as well as 91% of the voting rights under an existing agreement with Martifer. In a long-standing arrangement, Suzlon has been in the process of acquiring Martifer's full 22% stake in Repower for an agreed EUR 270 million. The original deal would have seen that price paid in full in December, but hard-pressed Suzlon agreed a new deal with Martifer for payment in installments -- and in December paid EUR 63 million for 5% of Martifer's Repower shares. Suzlon was to pay a further EUR 30 million by the end of last month and a final EUR 175 million this month to secure the outstanding 17% (Windpower Monthly, January 2009). While some press reports have suggested Suzlon cannot follow through on its commitments, Sinha insists otherwise. The purchase plan "will not stop" and will proceed, he says.

"If the world market had not collapsed, we would have been fine, as against our present condition where our debt levels are higher than we would like them to be," he says. The company has been criticised for overstretching itself and making several big acquisitions in quick succession. "Given our growth and acquisitions, we have made an unmatched niche in wind towards vertical integration," insists Sinha.

Despite a declining order book and poor results, which have seen Suzlon's stock market value plummet (Windpower Monthly, April 2008), there will not be "any retreat" from present markets, Sinha says. "We do expect the wind market to get more broad-based. Our challenge in future will be how to start exploiting markets smaller in size profitably and cost effectively. Many additional countries could become the market in future."

Finance options

A recent bond restructuring exercise has been completed in Singapore as part of a review of the company's financial options. Suzlon's first priority is to complete its deal with Martifer. Sinha says the firm is investigating all possible options to raise the cash for its final payments, including speaking to "bankers that will be willing to lend," raising equity or selling assets, including the potential sale of further shares in gearbox maker Hansen Transmissions, based in Belgium. Suzlon bought Hansen in 2006 as part of its vertical integration strategy. "We are not ruling anything out," says Sinha. "Some sale in Hansen is possible, though this will not be our preferred option." Suzlon has already sold a 10% equity stake in Hansen to Ecofin, a London investment firm.

"Further sales are possible in SE Forge," adds Sinha. Another of Suzlon's subsidiaries, Indian SE Forge specialises in large-scale foundry and forging materials, with manufacturing facilities in Coimbatore, Tamil Nadu, and Vadodara, Gujarat. Last year, Suzlon sold 17.1% of the firm to IDFC Private Equity for $80 million, cutting its own holding to 82.9% (Windpower Monthly, October 2008).

Yet another option being pursued by Suzlon is to raise around $80.14 million (EUR 60.5 million) by tapping into private equity, although in today's cash-strapped market it is a tough task. The company is engaged in what Sinha describes as "speculative" talks with C. Sivasankaran, a wealthy non-resident Indian whose resumé includes heading up Sterling Infotech Group. Sterling holds a majority stake in Finnish wind turbine manufacturer Winwind (Windpower Monthly, November 2006), but denies any involvement in the Suzlon talks. "Sterling has nothing to do with the discussions as that is Sivasankaran's private money," says the company.

Sinha notes that Suzlon's bankers are holding talks with a variety of investors besides Sivasankaran. He does not rule out the possibility of laying off staff. "As we manage production efficiencies, there might be extra capacity [in human resources] and we may need to look at rationalisation on a temporary basis," he says. "We are not taking anything for granted."

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