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Suzlon Energy: The Net Tightens on FCCB Repayment

  • With banks unlikely to cough up the money and bondholders unlikely to agree for another round of restructuring, the only recourse now for the company is selling a stake in its unit REPower or list the unit againFor a while this year, Suzlon Energy Ltd’s stock rose as news about order flows sparked investor interest. However, since the start of this month, the stock has lost some 12%, underperforming both the power index on BSE and the broader markets.Even the latest news about the firm forming a partnership with a Chinese company to develop a 800 megawatts (MW) project and its unit REpower Systems SE getting another 332MW project has failed to stem the decline.

  • The reason: time is running out for Suzlon to repay foreign currency convertible bonds worth $569 million in the next seven months. On Wednesday, Bloomberg reported that Suzlon’s US customer Edison International had said the earliest it will be able to pay for a contract is around February 2013. That is likely to deal a major shock to its repayment plan as Edison was supposed to pay $200 million. Not only that, things could go wrong with the other sources of funds the company has lined up.For one, the company plans to use $100 million cash from the balance sheet of Suzlon Wind. However, cash balances have steadily reduced to Rs. 678 crore by the end of December compared with Rs. 1,023 crore at the end of the previous financial year. All these new orders mean Suzlon’s working capital requirement may increase in the near term, which will put pressure on using this cash.

  • Secondly, the company reckons on sourcing some $200-250 million from internal cash flows. But will it be able to generate that much cash given that it has reported losses in most quarters in the past three years? For the nine months ended 31 December, Suzlon posted a loss of Rs. 178 crore. JP Morgan India Pvt. Ltd estimates the company may generate free cash flows of $200 million in FY13, but that is spread throughout the year, while Suzlon needs cash by October.The only recourse then for the company is to sell assets. It has already factored in $100 million from sale of non-core assets in its repayment plan. With banks unlikely to cough up the money and bondholders unlikely to agree for another round of restructuring, the only recourse now for the company is selling a stake in its unit REpower or list the unit again.

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