Debt-laden Suzlon today said its USD 1.2-billion sale of German arm Senvion to US-based VC fund Centrebridge Partners is at a “minor loss”, but will reduce the firm’s interest burden, free up liquidity and help it return to profitability next fiscal.
“The sales proceeds will be utilised for debt repayment, thereby reducing interest costs and augment the business growth,” Suzlon Group chairman Tulsi Tanti told reporters on a conference call from Davos, where he is attending the World Economic Forum summit.
Earlier in the day, the Pune-based wind turbine maker, which has been sitting over Rs 16,500 crore of debt, said it has entered into a binding agreement with American distressed assets fund Centerbridge Capital Partners to sell Senvion for USD 1.2 billion (about Rs 7,200 crore) in an all-cash deal to pare its debt.
Tanti said it is a “wise” decision to exit the business acquired in 2007 at Euro 1.4 billion and constitutes as much 65 per cent of the business.
He asserted that he is “happy” at the valuation which is “reasonable” given the current market conditions and at par with peers.
Tanti also sought to clarify on the view that the company, which is under corporate debt restructuring process, has sold the asset at a discount.
Pointing to 20 per cent deprecation of the rupee against the euro over the past seven years, he said: “net-net it is a very minor loss, there is no loss to the company… There is some misunderstanding that there is a loss while selling this company, it is not true.”
He said the rupee was trading at 60 to the euro at the time of the deal, whereas now a euro fetches you Rs 72.
Some analysts say that by selling Senvion, Suzlon loses one of the biggest revenue and profit centres for the group, which posted a loss of Rs 924 crore in FY14 and Rs 528 crore in the September quarter of this fiscal.
Tanti said both Suzlon and Senvion are profitable ventures. It is estimated that Senvion contributes to almost 65 per cent of Suzlon’s business now.
The company scrip zoomed by over 7 per cent after the deal was announced this morning, but later saw a sharp correction. It close 7.45 per cent down at Rs 15.91 on the BSE, as against 0.5 per cent gain in the benchmark Sensex which crossed the 29,000 mount for the first time.
“Sale of Senvion is not affecting our profitability. The biggest advantage is that by this deal, our interest cost is reduced and overall debt is reduced and that will help us focus on growth more,” he said, conceding that total balance sheet will get compressed after the transaction.
Tanti said Suzlon will save Rs 600 crore in interest next fiscal, as against Rs 1,600 crore now, while debt repayment will also free up additional sources of finance.
Suzlon, which restructured its debt in January 2012, will pay off Rs 6,000 crore from the proceeds to its 19 lenders led by State Bank of India, Tanti said, adding the remaining Rs 1,200 crore will be deployed for operational purposes.
Suzlon is also hopeful of a reduction in up to Rs 3,000 crore of debt from the option of converting FCCBs into equity for investors, he said, adding that there is a further component of Rs 4,000 crore in low-interest dollar debt for which the company does not have to make any principal repayments till FY19-end.
Post deal, Suzlon will be left with only Rs 3,500 crore in debt which will basically be working capital, he said.
Tanti said Suzlon has 2,500 customers with over 15,000 mw of operational capacity, from where it will continue accruing service revenues.
He said due to financial constraints faced earlier, it is not able to meet expectations of these customers till now, but will now be able to cater to the full demand.
“Next fiscal, Suzlon will be in profits because interest is reducing and volume will go up. Because of that, we will be profitable,” Tanti said.