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Suzlon’s Lenders OK Debt-Recast Plan

According to reports, Suzlon Energy Ltd.’s lenders have approved a plan to restructure $1.86 billion of debt, giving it a two year relaxation on repayments and lower interest rates over the next eight years.

But the plan includes a condition that the troubled Indian wind-turbine maker raise $1 billion in three years through selling shares and assets, a provision which will put pressure on it to consider selling a stake in its prized German unit, REpower Systems SE.

Analysts said selling other assets in the company as well as wind turbines will fetch it only a fraction of the fundraising target.

“Suzlon’s unit SE Forge will be valued at $100 million while the wind turbines will bring an additional similar amount, which add to only $200 million,” said Bhargav Buddhadev, an analyst at Ambit Capital.

“The founder, Tulsi Tanti, can’t put the remaining money on his own, neither can he approach the market for a share issue in these times,” he added.

At current valuation, Suzlon may get about 50 billion rupees ($930 million) for REpower, said Mr. Buddhadev.

Suzlon has however been maintaining it will not sell REpower, which it says is “a jewel in our crown,” to raise funds.

“We have receivables worth more than $200 million from one of our customers, apart from many other assets that can be sold,” Suzlon spokesman Anoop Kayarat said, without elaborating.

Suzlon bought majority shares of Hamburg-based REpower in 2007 and 2008–striking one of the biggest corporate deals in India then–in a bid to get access to world-class technology. In 2011, it bought all of the remaining shares in REpower.

REpower makes some of the biggest offshore turbines in the world. Mr. Tanti was hoping to leverage that technology to build the company into a major player.

But the company’s debt-fuelled expansion backfired as it ran into technical problems. A major customer in the U.S. refused it payment after finding cracks in the blades it supplied. At the same time, demand for green energy fell sharply from 2008 amid the global economic crisis.

The company ran into grave financial problems and asked its debtors repeatedly to roll over loans and defer repayment.

In October, 2012, holders of its foreign bonds declined to extend the date of repayment, leading Suzlon to default on $220.8 million of debt.

Also, Suzlon is lagging in its own equity-raising targets. It had aimed to raise up to $200 million by March but will be raising less than $100 million via sale of some wind turbines and its Chinese subsidiary.

Suzlon also can’t use cash generated by REpower, as the money has to be ploughed back into the German company as part of the original purchase agreement.

However, selling REpower will leave Suzlon bereft of key technological advantage over its rivals.

“Suzlon needs REpower to make higher-end turbines which are becoming extremely popular in markets such as Europe,” said Mr. Buddhadav, the Ambit Capital analyst.

REpower can manufacture turbines with power generation capacity of more than 6 megawatts, while Suzlon’s turbines can produce only up to 2 megawatts.

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