Indian leader goes on fund raising spree -- Suzlon consolidates, expands and becomes green power retailer

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Three weeks after confirming a long expected deal to consolidate its holding in German turbine manufacturer Repower, India's Suzlon announced that its board has approved plans to raise up to INR 18 billion ($390 million) via a rights issue to pay for the deal. It also announced that it has sold some of its shares in subsidiary company SE Forge, raising a further INR 4 billion ($85.15 million). SE Forge is a large scale foundry.

Most of the money raised will pay for the 22.48% share in Repower held by Portugal's Martifer, which Suzlon declared last month it was acquiring. The Martifer deal, valued at EUR 270 million ($387.5 million) and due for completion in December, follows Suzlon's acquisition in June of the 30% stake in Repower held by Areva (Windpower Monthly, July 2007). Martifer will receive EUR 130 a share. The purchase takes Suzlon's share in Repower to 90%. Suzlon hopes to use the rest of the money raised to secure the remaining 10%.

"This is a very important development for Suzlon and Repower," says Suzlon's chairman, Tulsi Tanti. It "will put both companies in a stronger position to derive synergy benefits from the collaboration." The rights issue will "strengthen the capital base" of Suzlon, he adds. "This is a key step to strike the right balance in the leverage position of the company and to fuel the growth of our business." Suzlon hopes to improve Repower's operating performance by using its castings and forgings factories in India to supply Repower. It also plans to provide Repower with gearboxes from Hansen Transmissions in Belgium, another Suzlon company. No decisions have yet been taken on whether Repower will continue to be kept as a separate entity.

Suzlon's first share purchase in Repower was secured after a four month battle with Areva back in 2007 (Windpower Monthly, June 2007), outgunning the French nuclear giant by raising its bid price to EUR 150 a share -- a hefty 69% premium over Repower's share price prior to the eruption of the takeover battle. Repower's shares currently trade at more than EUR 200 a share. In total, Suzlon says it has spent about EUR 1.29 billion to secure its total 90% holding, which suggests it paid Areva around EUR 200 a share for its stock. The total paid also values Repower at a multiple of 11-12 times the company's earnings before interest, tax, depreciation and amortisation, based on analyst estimates for 2009, which is more or less in line with valuations of Vestas and Gamesa.

Meanwhile, Suzlon is reducing its holding in SE Forge to 82.9% by selling 17.1% of its shares to IDFC Private Equity. "SE Forge is a key part our efforts to achieve a fully integrated value chain in a supply restricted environment and a catalyst to support industry growth, as we did with Hansen," says Tanti. "With IDFC's participation, SE Forge is set to grow into an industry powerhouse to meet the demands of a growing high-demand marketplace." SE Forge has manufacturing bases in Tamil Nadu and Gujarat. A separate, independent identity for the company is to be established, says Suzlon, allowing it to grow with a business plan to cater to the demand for specialised components for the wind industry and other sectors.

Wind plant owner

Tanti has announced that Suzlon Green Power, a company owned 100% by the Tanti family, is making a commitment to develop 3500 MW of renewable energy over the next fives years, primarily in India and China. The $5 billion project, with $1.5 billion Suzlon equity, will bring green electricity to nearly ten million people, he says. "The urgent global need for clean energy compelled me to dramatically expand my family's business holdings," he says. While Suzlon Energy will continue to focus on pure development and turbine supply to the global market, "we now commit to developing and owning green power assets through Suzlon Green Power, which will bring energy where it is needed most," he adds. "Suzlon Green Power's business model will offer us an asset-based long term annuity income while mitigating the twin challenges of global warming and climate change."

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