Suzlon Not Required To Sell Repower To Raise Money

Raising of 5,000 Cr by promoters or as equity is not a mandatory pre-approval condition for CDR. As part of the CDR process the company will have to raise 5,000 Cr in 3 years and 3 months (39 months) time by March 2016.

Delhi (I-Newswire) January 17, 2013 - In view of the confusion prevalent in the market regarding one of the most watched Corporate Debt Restructurings in recent time of Suzlon, our analysts decided to study the entire issue and come out with the right picture of the process.

Contrary to what some people are claiming, raising of 5,000 Crore by promoters or as equity is not a mandatory pre-approval condition for CDR. As part of the CDR process the company will have to raise 5,000 Cr in 3 years and 3 months (39 months) time , i.e. by March 2016. Hence Suzlon doesn't have to raise this money now. It is expected that this money will be raised by cash accruals and selling of non-critical assets but not Repower as it is an integral part of its operations and strategy. Suzlon took control of Repower after a bitter battle with Portugal's Martifer before the 2008 credit crisis and by paying over the odds. The bankers and lenders realising Repower’s importance have never asked Suzlon to raise fund by selling it.

One additional reason why Suzlon doesn’t need to sell Repower is that it has huge assets and order book unlike some other companies whose CDR happened in the recent past. A company spokesperson too confirmed in an email response. "The company is in negotiations with its lenders on the CDR issue. We have also been on record in recent weeks stating, without ambiguity, that REpower is 'the jewel in our crown' and it is by definition a critical asset and, therefore, not for sale. Our position has not changed. In the short term as per the proposed debt recast package for Suzlon, the company must invest Rs250 Crore immediately and Rs500 Crore more over 18 months.

As a part of the package lenders have agreed to lower the interest rate to 11%, from 14-15%. Also when the restructuring happens, lending banks would reinstate the working capital of Rs 1,500 Crore, which was blocked earlier. In turn, Suzlon would be required to consolidate by selling some of its overseas subsidiaries and open an escrow account with the lead bank, State Bank of India. Suzlon has appointed SBI Capital Market, the bank's investment banking unit, to advise it on debt recast. Senior officials, who declined to be named, said the lenders have in principal approved the debt recast package but the management of each bank will have to give written consent.

In view of the above information, we maintain that Suzlon remains a company with good future prospects and growth potential.