Suzlon may break even for first time since 2011 on bond deal

Suzlon’s board approved a plan on 3 May to issue new five-year convertible bonds maturing by March 2020, replacing notes originally due in 2012, 2014 and 2016. Photo: Bloomberg 

 

 

New Delhi: Suzlon Energy Ltd’s agreement with its largest bondholders to restructure $485 million of debt may allow Asia’s second-biggest wind turbine maker to break even this fiscal year for the first time since 2011.

The deal eliminates a potential threat of liquidation that had loomed over the manufacturer since October 2012 after causing India’s biggest convertible-bond default. That could prod Suzlon toward recovery after four straight years of losses and last year’s ceding of its position as the nation’s top wind-turbine maker for the first time in at least a decade.

Suzlon’s board approved a plan on 3 May to issue new five-year convertible bonds maturing by March 2020, replacing notes originally due in 2012, 2014 and 2016. The new price for conversion into equity was reduced by as much as 84% to Rs.15.46, meaning Suzlon’s share price doesn’t need to appreciate by as much for investors to profit. Suzlon closed at Rs.13.4 on 2 May.

“The Pune-based company could achieve cash break-even this year as the bond settlement restores customer confidence and improving liquidity boosts operations,” said Charanjit Singh, a Bangalore-based HSBC analyst. The last time Suzlon generated more cash than it needed for expenditures and dividends was three years ago, according to data compiled by Bloomberg. Suzlon may return to profit by March 2016, he said.

 

Suzlon failed to repay $209 million of notes in October 2012, triggering a clause allowing all outstanding bondholders to demand immediate repayment. Those investors could have filed a winding-up petition to push Suzlon to liquidate.

The deal removes a stigma on the company about that threat, which unsettled customers and caused 90% of suppliers to stop extending credit and demand bank guarantees that tied up cash needed to carry out orders, Kirti Vagadia, group head of finance, said in a phone interview on Sunday.

“Bondholders will approve the deal on 9 July because a committee representing a majority of the investors has already signed off on it,” Vagadia said. “They’ve also committed not to backtrack or pose any obstructions until 15 August to allow Suzlon to complete formalities,” he said.

The new bonds will have a coupon rate that will step up over the five years, and the yield will average out to approximately 5%, Suzlon said in an e-mailed statement on 3 May.

The restructuring covers all of the 2012 and 2014 notes and half of the 2016 ones, according to the statement. Suzlon has honored a request by some investors holding the 2016 series to keep those notes, Vagadia said.

PRASHANT SHARMA

PGDM-IIsem