Suzlon default puts banks on edge as corp debt soars

Written by Shobhana Subramanian | New Delhi | Updated: Nov 2 2012, 10:16am hrs
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Indias top bankers will meet on November 8 to break their heads on how they can recast Suzlons whopping R14,000-crore debt. The wind energy player has been unable to repay foreign currency convertible bonds on schedule and reported a record loss of R850 crore in the June quarter. Analysts predict falling margins in difficult market conditions; so, its hard to say just how soon the company will make money again.

Suzlon is just one example of how highly leveraged Indian firms are running to banks, asking to be bailed out. Indeed, the sharp downturn of the economy, the acute shortage of key natural resources and sluggish global demand are hurting India Incs revenues and quality of profits like never before. So much so that the interest bill for many is way more than their profits and debt could soon overshoot revenues.

Adani Enterprises profit before tax fell 70% year-on-year in the three months to September 2012. Thanks to its crippling debt of Rs 68,000 crore, the firm will need to fork out R3,061 crore by way of interest this year. Thats more than the Rs 2,000 crore that the firm is expected to make by way of profits on revenues of just over Rs 40,000 crore.

While Adani was hit by rising fuel costs, JSW Steel continues to be in trouble because its not sure it will be able to source all the iron ore it needs and at the price at which it wants and its profits are estimated to fall in 2013-14 from around Rs 1,600 crore this year. The steel major is already steeped in debt and the consolidated net debt to Ebitda of 3.9 times is making analysts uncomfortable in a deteriorating steel cycle. The net debt to equity (excluding revaluation reserves) of 1.6 times by March 2014, they say, will breach norms.

Bankers are also understood to be a tad nervous about Lanco Infratechs financial health state electricity boards owe it some Rs 2,600 crore. The firm has not succeeded in selling any of its assets yet and cash flows could come in at a negative Rs 650 crore or so this year. The balance sheet is stretched with current net debt to equity at about 5:1.

Revenues at Reliance Communications are unlikely to overtake the telcos outstanding net debt of R35,000 crore in the next couple of years; sales for 2013-14 are estimated at Rs 23,000 crore, while net profits may just about hit Rs 1,000 crore. The firm will, however, pay interest charges of Rs 2,200 crore this year and slightly higher sums in the following two years, unless it pares borrowings. Another company thats rumoured to be in a bit of a spot is Essar Steel, which has borrowings of about R23,000 crore. Bankers concede that its cash flows are stressed but confirm the firm continues to service the loan.