Beleaguered Suzlon Energy?s $650-million bond issue, scheduled to open on Monday, is expected to be priced in the region of 5%, bankers close to the development said.
The bonds will be backed by a consortium of Indian lenders, led by State Bank of India (SBI).
Suzlon will use the proceeds to primarily refinance its international subsidiary?s existing debt of around $634 million, a part of which would be maturing on March 23, 2013.
Of the $634 million of the maturing debt, approximately $300 million is SBI’s exposure. Although Suzlon does not have an international rating, the bonds are expected to be rated BBB- since they are being backed by lenders, investment bankers say.
The guarantees, SBI officials point out, are typically treated as contingent liabilities ? a potential obligation that may or may not be incurred. Since the Suzlon bonds are backed by the banks, they will have to pay the bond holders in case the company defaults. SBI officials said that although the bank would not be required to make provisions on contingent liabilities, they would attract a capital charge.
A Credit Suisse note released on Monday says this structure is likely to allow banks to move this $650 million exposure off-balance sheet, thereby allowing them to report lower ?restructured loan? and save on provisioning. However, the brokerage added ?we expect RBI to tighten restructuring norms further and direct banks to report restructured loans based on exposure to borrower than just loans outstanding?.
The Indian lenders to Suzlon are also restructuring the company’s R11,500 crore debt, giving the firm a host of concessions.
In January this year, the empowered group of corporate debt restructuring (CDR) cell approved a package that includes a two-year moratorium on principal and term-debt interest payments, a 3% reduction in interest rates from 14% to 11%.
The debt restructuring was approved after Suzlon’s bondholders rejected a request by the company to extend the deadline for repaying foreign currency convertible bonds (FCCB) worth $221 million due in October 2012.
SBI has the biggest exposure to Suzlon of around R3,500 crore, IDBI Bank has lent the firm around R1,700 crore,
Bank of Baroda R1,000 crore and Indian Overseas Bank R1,000 crore.
Some of the other lenders to the group with smaller exposures include ICICI Bank, Axis Bank and Yes Bank.
