According to reports, lenders to Suzlon Energy are demanding that the company raise equity of 5,000 crore or sell its ‘crown jewel’ REpower before any loan restructuring as wary banks do not want a repeat of the Kingfisher fiasco.
The lenders will agree to lower interest rates and extend the tenure of the loans to ease pressure on the company’s finances only if the wind power equipment maker sheds some assets, two people familiar with the development said. Suzlon owes lenders 14,000 crore.
Founded by Tulsi Tanti, Suzlon says it won’t sell a stake in REpower that it took control of after a bitter battle with Portugal’s Martifer before the 2008 credit crisis and by paying over the odds. “The company is in negotiations with its lenders on the CDR issue,” the Suzlon spokesman said in an email response. “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.”
Faced with rising bad loans and a deluge of restructurings estimated at 3.25 lakh crore, banks are turning cautious in providing liberal terms to borrowers.
The banks’ cautious attitude follows restructuring of debt to companies such as Kingfisher Airlines and telecom tower firm GTL, which has left them weaker. The wind power equipment maker landed in financial trouble when its acquisitions during the pre-crisis period led to accumulation of more than .`14,000 crore of debt.
Other than REpower, Suzlon had bought Belgian gear-box maker Hansen, which it later sold off to reduce debt. Suzlon has now sought restructuring of the loan terms. Corporate Debt Restructuring (CDR) refers to the forum for lenders to ease loan terms for companies in financial trouble. A loan is eligible for CDR provided the initiative to resolve the case under the CDR system is taken by at least 75% of the creditors by value, and 60% by number.
The proposed recast package for Suzlon stipulates that the borrower invest Rs 250 crore immediately, and Rs500 crore more over 18 months. Lenders have agreed to lower the interest rate to 11%, from 14-15%. If the restructuring happens, banks would reinstate the working capital limit 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. 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.
Suzlon Energy has been reporting losses since 2009, after the acquisition of REpower. It logged a loss of Rs 505 crore last fiscal. Suzlon Energy has domestic loans of Rs 10,000 crore and overseas loans of Rs 3,500 crore. State Bank of India has the highest exposure atRs 3,400 crore, followed by IDBI at Rs 2,200 crore. PNB has lent Rs 800 crore while LIC has provided Rs 550 crore.