1. Suzlon sells German arm for 1 bn euros to pare debt

Suzlon sells German arm for 1 bn euros to pare debt

All-cash deal to bring earnings of 50 m euros

By: | Mumbai | Published: January 23, 2015 12:55 AM

Continuing its efforts to pare the Rs 16,500-crore debt on books, wind turbine manufacturer Suzlon Energy said on Thursday that it will sell its German subsidiary Senvion SE for 1 billion euros, or Rs 7,200 crore, to US private equity firm Centerbridge Partners LP.

The all-cash deal will bring in future earnings of about 50 million euros, or Rs 360 crore, subject to the fulfillment of certain operational milestones.

The company will now focus on its domestic and US operations and look for opportunities in emerging markets such as China, Brazil, South Africa and Mexico.

Senvion, previously known as REpower, was bought by the Ahmedabad-based firm in June 2007 for 1.2 billion euros. The Hamburg-based company posted FY14 revenue of 1,806 million euros, which implied a contribution of approximately 70% to Suzlon’s FY14 revenue, assuming an average exchange rate of Rs 81.

Suzlon chairman and managing director Tulsi Tanti said in a conference call that the sale will not affect the company’s profitability in the current fiscal.

“The company seems to have aggressive growth plans for the Indian market,” according to a consultant at a global consultancy firm. “The deal will reduce its debt and its debt servicing obligations will also reduce, which implies greater profitability in future.”

Tanti said that of the Rs 7,200 crore of deal value, Rs 6,000 crore would be used to reduce the company’s debt of Rs 16,500 crore while the rest would be utilised to fulfil working capital requirements.

He added that there was a high probability that holders of foreign currency convertible bonds (FCCBs) valued around Rs 3,000 crore would convert their holding to equity in FY16, which would result in a net debt of Rs 7,500 crore for the company.

“Of the Rs 7,500-crore debt, Rs 4,000 crore represents low-interest dollar debt. It’s due for repayment in FY19,”
Tanti said.

The company also expects to halve its interest cost to Rs 800 crore in fy16.

Tanti said the company will also sell some production facilities deemed unnecessary and set up new manufacturing units in places, which will reduce its logistical costs.

The deal has been in the pipeline for almost three months now, according to a person familiar with the matter.

“We considered both options, sale and listing of Senvion. If the deal had not taken place, we would have listed Senvion by March,” Tanti said.

Suzlon, once ranked the third-largest wind turbine maker globally based on capacity, faced headwinds after the economic downturn in 2008. It could not service its debt and defaulted on its FCCB repayments in October 2012, which resulted in a cross-default on other FCCBs issued by the company. It entered into Rs 9,500-crore corporate debt restructuring (CDR) in January 2013 with 19 banks. On May 3, 2014, the company announced the restructuring of the Series 4 of these FCCBs.

In the fourth quarter of FY14, the company turned Ebitda-positive after seven sequential quarters of being in the red. Suzlon posted a net loss of Rs 3,520 crore for fy14 on a revenue of Rs 20,211 crore.

The Suzlon stock fell as much as 8% during intra-day trade on Thursday on the Bombay Stock Exchange. It closed down 7.5%, at Rs 15.91.

Second wind
*  The company will now focus on its domestic and US operations and look for opportunities in emerging markets such as China, Brazil, South Africa and Mexico
*  Suzlon chairman and managing director Tulsi Tanti said that of the Rs 7,200 crore of deal value, Rs 6,000 crore would be used to reduce the company’s debt of Rs 16,500 crore while the rest would be utilised to fulfil working capital requirements
*  He added that there was a high probability that holders of FCCBs valued around Rs 3,000 crore would convert their
holding to equity in FY16

*  Tanti said the company will also sell some production facilities deemed unnecessary and set up new manufacturing units in places, which will reduce its logistical costs

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