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Foreign currency bond redemption worries Suzlon’s auditors

According to reports, as the due dates for repayment of its over Rs 3,000-crore FCCBs approach, Suzlon Energy’s auditors have flagged their concerns over the same.

In view of the uncertainty in the manner in which the company would raise funds to repay its upcoming FCCBs due in June and October, Suzlon’s auditors have given ‘a matter of emphasis’ on the use of going concern assumption for preparation of the December quarter results. Simply put, it means that the going concern assumption would be dependent on the company’s ability to repay this debt. The management has stated that it is confident of raising the required funds.

Despite healthy order book in hand, Suzlon Energy’s consolidated sales expanded only 12.5 per cent in the December quarter over a year ago as a result of slower execution of projects. Interest costs also pulled the company in to losses.

Funding constraints and high leverage continued to hurt Suzlon’s performance. For the December quarter, the company delivered lower volumes, especially in India, as it had difficulties ramping up its working capital facilities in the quarter. The company has since been sanctioned Rs 1,100 crore of working capital facilities.

The delay may indicate lack of confidence by lenders. Despite enjoying superior margins on its earnings before interest and taxes (six per cent last fiscal), compared with global peers such as Gamesa or Vestas (2-4 per cent), Suzlon’s leverage has been a drag on earnings.

Earnings before interest and taxes at Rs 182 crore could not cover interest cost of Rs 358 crore in the December quarter.

Debt-equity ratio rose marginally to 2.1 times as of December as the company decided to reduce the FCCB redemption premium from its share premium reserves. It was so far not accounting the FCCB redemption premium due as a liability. The company’s FCCBs with redemption value totalling Rs 3021 crore are due June and October. Given the current scenario, its ability to repay the same would be dependent on three factors:

One, it has dues close to Rs 1,000 crore from one of its clients Edison Wind. It will have to receive this on time.

Two, it is unclear whether it can utilise its German subsidiary REpower’s cash for the FCCB repayment. Over Rs 1,200 crore of its Rs 1,900-crore cash as of December came from its subsidiaries.

Third, its ability to once again renegotiate for a reset of the FCCB. The last seems unlikely as Suzlon has already resorted to reset for two of its tranches.

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