Expect Senvion-like sales from over-leveraged cos
If Tulsi Tanti has sold Senvion, it is because lenders to Suzlon Energy have been pressuring over-leveraged promoters to sell whatever assets they can to make good their dues; else entrepreneurs like Tanti would continue to pursue their personal ambitions at the cost of the banks. Indeed, had Senvion been sold a year or even six months back, the transaction would have fetched a far better price because valuations for global energy majors have fallen since then. Senvion was, no doubt, among the top players globally and its technology infinitely superior to anything that Suzlon could have hoped for but the loans that had funded the buyout had crushed the company’s financials. The lesson to be learnt from the Senvion acquisition is that leveraging way beyond one’s means to scale up can end up damaging, not just the promoter’s reputation but also the core operations. With the management obsessed with holding on to the German company—and looking for ways to fund the operations—Suzlon lost sight of the India opportunity. In the last few years, other global energy majors have made inroads into the Indian market, gaining share that could have been Suzlon’s.
The biggest losers in all this have been the company’s lenders and bond-holders. The wind turbine manufacturer defaulted on a $209 million bond repayment in October 2012 after the bond-holders rejected a request for a grace period. Indeed, so indebted had the company become that banks were compelled to restructure the debt; even after the company makes some repayments with the R7,200 crore that it will make from the Senvion sale, the dues across lenders—local and foreign—will be close to R10,000 crore. That is not small given the state of the business—consolidated losses in the six months to September 2014 were R1,385 crore on revenues of R10,051 crore, and excluding Senvion, the company reported an operating loss. Having realised what the extent of the damage could be, it is not surprising bankers have been pushing promoters of groups that are financially over-stretched to shed assets; at their behest, some deals, such as the sales of cement units by the Jaiprakash Associates Group, are going through and many more could take place this year given private equity funds scouting for assets and a couple of business houses also on the lookout for manufacturing units. The trigger for these sales will be much the same as it was for Tulsi Tanti selling Senvion—inadequate cash flows to service the debt and pressure from lenders.