Loss-making Suzlon Energy, which binged on overseas acquisitions with borrowed money during the boom years of 2005-2008, is set to default on foreign loans worth more than $200 million after offshore lenders refused to give more time for repayment.
Suzlon’s request to extend the date for repayment of $209 million worth of convertible bonds by four months to February 11 was rejected by bondholders, the company said in a statement on Thursday. The announcement sent its shares crashing by more than 5%. This would be the biggest default by an Indian company after pharma major Wockhardt failed to pay bondholders in 2009.
“I don’t have enough resources to meet the obligation today. So, it’s a potential default,” a senior company executive told ET.
The default may also have breached covenants on the company’s FCCBs that mature in 2014 and 2016, and which are together worth $270 million, two people close to the development said. Bondholders may seek early repayment on these two bonds, adding to the woes of the cash-strapped wind turbine maker that has been struggling to raise money and recover payments from clients amid a sharp slowdown in wind energy sales.
Suzlon shares later recovered to end the day down 2% at Rs 16.20.
SuzlonBSE -1.54 % is the world’s fifth-largest wind turbine maker. In 2007, it purchased Germany’s REpower for around Rs 8,000 crore, in the process adding a debt of 14,000 crore. The subsequent slowdown in wind energy sales and withdrawal of tax incentives in the budget pushed the company deeper into the red. It has not made an annual profit in the past three years.
“The default would hurt Suzlon’s creditworthiness. The company does not have further headroom to raise loans,” Ruchir Khare, analyst at Kotak Securities, said.
“It is not good news,” the company executive quoted above added.
Lenders may Consider Restructuring
“But we will continue to engage with our bondholders constructively and progressively with a solution-oriented approach,” he added. In July this year, Indian lenders to Suzlon helped out when the redemption of the first tranche of convertible bonds worth $360 million became due. But this time they have declined requests for a similar arrangement.
But in a move that may give the company long-term succor, the lenders have agreed to consider restructuring of Suzlon’s debt to bring down its costs. “The current default of $220 million is not much considering the company’s overall debt profile. But it has other implications. We have to negotiate with bondholders and arrive at a settlement,” said Santosh Nayak, deputy managing director of State Bank of IndiaBSE -0.83 % said. Nayak said the asset has yet not defaulted in the bank’s books and, therefore, stands a chance to be restructured. “The company has a lot of cash flows and a healthy order book. The company has a subsidiary called REpower that is debt free and has huge cash balance,” he added.
Suzlon executives did not comment on the restructuring, but said they did not want to get into hypotheticals on the issue of cross defaults. “Constructive dialogue continues and we remain optimistic of arriving at a solution that works for all stakeholders,” they added.
Source – Economictimes.com