Mumbai: Renewable energy solution provider Suzlon Energy is in talks with two financial investors to sell up to 49% in its operations and maintenance subsidiary, Suzlon Global Services, in an attempt to raise funds to pare debt, people involved with the deal told ET. Suzlon is believed to be looking for a valuation of Rs 8,000 crore for the services business.
The company aims to reduce its debt by 30-40% by the end of 2018-19 through asset sale and other strategic initiatives. The immediate task at hand is to raise enough funds to meet an obligation of around Rs 1,200 crore on its foreign currency convertible bonds (FCCBs) that mature in July 2019.
“Suzlon is talking to two investors and the deal should be done before March. The services business in India has an annuity like cash flow, with operating margin of around 45%, so there is interest among private equity investors. The company is also working on a ‘plan B’ to make sure the repayments are taken care of,” one of the people quoted above said.
As a back-up plan, in case the deal gets delayed, Suzlon Energy is also in advanced stage of securing a long-term cash flow-based ring fenced funding of Rs 5,000 crore against this business, the source said. Suzlon Energy declined to comment on ET’s query.
Suzlon Energy had a net term debt of Rs 6,800 crore and another Rs 3,400 crore of working capital loans as on end-September. The fall in the rupee has put additional pressure on companies, like Suzlon, who have foreign currency debt maturing soon. What adds to Suzlon’s woes is that its share prices have fallen below the FCCB conversion price, leaving it no option but redemption of the bonds. In the last six months alone, shares of Suzlon Energy have fallen 40% to Rs 5 as against a marginal rise of 0.6% in the benchmark index Sensex. On Friday, Suzlon Energy slipped 0.77% to close at Rs 5.16 on BSE.
In 2012, Suzlon Energy defaulted on FCCB repayment after its bond holders rejected an extension plea; the biggest default at the time by any Indian company. The default breached covenants of its other liabilities. In July 2014, FCCB holders who had $146.2 million in principal amount of the 5% April 2016 FCCB series agreed to exchange their FCCBs for a new series that matures in July 2019.
Suzlon’s operation and maintenance business is its “cash cow”, contributing almost 35% to the company’s topline, with 15 gigawatts (gw) of assets under management. The business reported revenue of Rs 925 crore in the first half of 2018-19, up 4.7% on year.
In an investors call after its second quarter result, when asked why the promoters were not buying shares from the open market to provide support to the plummeting share prices, the management had said it cannot do so if it has “inside information”. This was seen as a hint by some analysts that a stake sale deal was imminent.
In a report last month, IDFC Securities said, “We expect the asset monetisation will help Suzlon to reduce its long-term debt by 30%-40% before end of FY19. Considering the impending asset monetisation, sharp correction in the stock price and the progress on getting regulatory approvals for transmission access and tariffs, we believe Suzlon’s stock is cheap at 8x FY20E earnings.
As a result, we reiterate out performer with a target of Rs 12/share.”