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Banks scuttle Suzlon plan to pay unsecured bondholders abroad

According to reports, local banks have scuttled the chances of Suzlon Energy’s offshore bondholders receiving any funds from the troubled firm. Lenders recasting Suzlon’s debts have put restrictions on any cash payments by the loss-making company to its unsecured debtors. The condition laid down by banks in India has hurt Suzlon’s foreign currency convertible bondholders who were negotiating a possible haircut with the company for redeeming the bonds.

The cash-strapped wind turbine maker Suzlon Energy defaulted on a $200-million foreign currency convertible bond (FCCB) repayment in October 2012, which subsequently triggered a cross-default on $270 million FCCBs maturing in 2014 and 2016. The overseas investors had hoped that Suzlon would be bailed out by Indian banks who had earlier thrown a lifeline for the company to pay off its bondholders.

But that did not happen. Subsequently, in January, a consortium of 19 banks, led by the country’s largest lender State Bank of India, inducted Suzlon into the corporate debt restructuring cell (CDR) for restructuring loans of Rs 9,500 crore. “The bondholders have sought either full or part payment for their holding. These international investors no longer want to be locked in with the investment,” a person involved with the development told ET.

But a senior executive with one of Suzlon’s key banks said, “Our mandate to Suzlon is clear: there cannot be any cash payment to unsecured debtors at this stage. All stakeholders of Suzlon have made some sacrifices because we believe in the company’s potential. The bondholders should agree to Suzlon’s offer of reissuing bonds to them.” Last month, Suzlon and its bankers met some of the bondholders, their respective advisors in Mumbai where the company offered fresh bonds in lieu of the old bonds.

It was a proposal to stagger the repayment to foreign bondholders. “However, the bondholders are wary of rolling over their position because the new FCCBs would mature five years later, and Suzlon could still be in CDR and unable to repay. That would effectively mean locking their investment for 10 years,” said the person involved with the negotiations. “The bondholders appreciate that they are junior creditors but are frustrated with the lack of sophistication and rigid stance taken by Indian banks.

If there is an out-of-court restructuring being attempted of this magnitude, the international investors would expect Indian banks to step in,” he said. Responding to ET’s email query, a Suzlon spokesman said, “Our ongoing discussions with our bondholders continue to be progressive, with all parties focused on finalising a comprehensive solution at the earliest. However, the details of the plan are commercially sensitive and we are therefore unable to discuss them at this time.”

In the last few years, several Indian companies have defaulted on their FCCB repayment obligation as stocks fell and cash flows dried up due to slowdown. Prior to this, Workhardt and Zenith Infotech defaulted on their FCCB obligation and their bondholders filed winding up petitions in the court. Suzlon’s FCCB holders are undecided over whether to file a winding up petition which could reduce their chances of salvaging the funds.

“It’s a Hobson’s choice for the bondholders. They may get a bad deal if they go for fresh bonds but they may not get anything if they file a winding up petition,” said Alok Dhir, founder and managing partner legal firm Dhir & Dhir Associates, which has represented borrowers and bondholders in similar cases. “The other option with the bondholder is to use the pressure of a winding up petition to negotiate with the Suzlon management and its bankers for a settlement. They can also proceed to get their debt crystallised and try to execute their decree against the assets of the company.

The Supreme Court verdict in a Allahabad Bank vs Canara Bank case says that an unsecured lender can execute its decree (if obtained) over a secured lender as long as the company is not wound up,” Dhir. Tulsi Tanti, who was rated as the eight richest Indian in 2005 in Forbes list of ‘Richest Indians’, built Suzlon from scratch into India’s largest wind turbine making company in less than a decade.

He made big ticket acquisitions, like the German arm REpower Systems, in Europe to fuel his global ambitions, in the process accumulating debt of Rs 13,000 crore — more than ten times its current market cap of Rs 1,275 crore.

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