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Global majors eye Suzlon’s German arm, REpower

According to reports, Alstom seen to be in preliminary talks for REpower; GE, Siemens also in race. But many analysts feel it ought not to sell.

Talk of a stake sale in Suzlon’s European business is back. Global power equipment and wind turbine majors Alstom, Siemens and GE are negotiating with Suzlon Energy for a possible buyout of its German subsidiary REpower, said two people familiar with the ongoing negotiations.

They said the talks were preliminary and may not even conclude in a deal. Even earlier, the company had tapped Gamesa, the Spanish wind power company, and Mitsubishi of Japan for exploring a similar divestment. Morgan Stanley was then involved as an advisor.

German media reports yesterday said Alstom was eyeing REpower and was even willing to pay as much as euro 1.5 billion ($2 billion) for the asset. When asked, Alstom said it refused to comment on speculation; similarly, Suzlon’s spokesperson told Business Standard, “We do not respond to market speculation.” However, neither denied the development.

Following the report, the Suzlon stock was down four per cent and closed at Rs 28.8 per share at the Bombay Stock Exchange on Thursday. Sector experts and analysts say it may not be a good idea for Suzlon to lose REpower, considered its ‘crown jewel’.

Suzlon acquired REpower four years before but had to wait a long while to get complete control over the company, in order to get access to its prize technology. This was achieved only recently by Suzlon, after squeezing out minority shareholders. The debt-ridden company sold off another firm it acquired, Hansen to come up with the cash for the complete control.

With REpower’s technology, Suzlon can also shift a part the manufacturing to cheaper Indian locations and improve their margins.

“If they sell it, it will be a huge loss in terms of technology. They will also lose clientele from Europe. They have been bagging a few orders internationally of late,” said a stock broker who refused to be named.

Agreef another stock broker at an international brokerage. “It is not easy to get technology in place. It is very unlikely for them to sell the company unless they are under complete distress,” he said.

Though a massive Rs 11,790 crore debt has been weighing on Suzlon’s books for years, complete control over REpower also gives them access to cash on the German company’s books. The cash is as much as Rs 2,000 crore. One of the Indian parent’s plans was to use this to pay off a part of its debts. Suzlon’s net debt is 2.1 times its equity.

However, worries over repayments could be a factor to explore a possible sell out.. The company has two Foreign Currency Convertible Bond (FCCB) repayments coming up in June and October this year. The total repayment obligation is Rs 3,427crore.

Added to that, the price of sale indicated by the reports at $2 bn denotes a premium for the company. “But debt problems were there for a long time. It’s a bad idea to trade good technology for that,” said the research analyst.

Some believe robust growth in the order book may help the company overcome its worries. “Suzlon may be able to honour repayments on FCCBs as it has reasonable cash reserves, can expect working capital savings and execution is likely to be better in 2012 on order book strength,” said a research report by UBS in February.

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