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Suzlon’s ability to generate adequate cash red flagged by auditors

According to reports, loss-making Suzlon Energy’s auditors have raised red flagged issues like the wind turbine maker’s ability to generate adequate cash flow to support operations.

Suzlon, grappling with tough business conditions, posted a consolidated net loss of Rs. 1,075.25 crore in the quarter ended December 2013.

The concerns of auditors are mainly related to the company defaulting payments to foreign currency convertible bond (FCCB) holders as well as overdue amounts to certain creditors and lenders.

In their limited review report of the company’s financial results for the 2013 December quarter, auditors have red flagged material uncertainty about Suzlon’s ability to generate adequate cash flows.

The auditors have drawn attention to “material uncertainty about the company’s ability to continue as a going concern which is in part dependent on the successful outcome of the discussions with the FCCB holders as well as the company’s ability to generate adequate cash flows to support its operations”.

Besides, they have also raised red flag about “contingency related to compensation payable in lieu of bank sacrifice, the outcome of which is materially uncertain and cannot be determined currently”.

The amount of bank sacrifice made by the lenders, who did corporate debt restructuring (CDR), is Rs. 348.32 crore for the group.

However, the auditors – SNK & Co and S R Batliboi & Co LLP – have not qualified their conclusions on these two matters.

Suzlon defaulted in repaying about $209 million (Rs. 1,289.78 crore) with respect to its unsecured FCCBs that were due in October 2012. This also triggered a cross default under the company’s other existing FCCBs worth $90 million (Rs. 556.20 crore) and $175 million (Rs. 1,081.50 crore). These two bonds were otherwise due this year and 2016.

These defaults also trigger “acceleration of payments, if demanded by a specified proportion of the 2014 and/ or 2016 FCCB holders, the company said while announcing its quarterly financial results on Friday.

The 2014 and 2016 FCCB holders have not issued any acceleration notice”.

Suzlon also said it is in negotiations with the FCCB holders, certain lenders and creditors besides working on various solutions with them to ensure settlement of dues.

“Pending the final outcome of negotiations, though there exists a material uncertainty, these consolidated results have been prepared on the basis that the company will continue as a going concern and no adjustment have been made to the carrying values or classification of assets and liabilities,” Suzlon said.

Suzlon and its certain specified subsidiaries and the CDR lenders executed a master restructuring agreement during the previous year. This agreement as well as provisions of the master circular on CDR issued by the Reserve Bank of India (RBI) provide the right to CDR lenders to get a ‘recompense’ of their waivers and sacrifices made as part of the debt rejig.

“The recompense payable by the company is contingent on various factors including improved performance of the company and many other conditions, the outcome of which is materially uncertain and hence the proportionate amount payable as recompense has been treated as a contingent liability,” Suzlon said on Friday.

The aggregate value of the outstanding sacrifice made by CDR lenders up to December 31, 2013 as per the master restructuring agreement is about “Rs. 280.64 crore for the company and Rs. 348.32 crore for the group”, it added.

Suzlon reported a consolidated net loss of Rs. 1,075.25 crore in the December quarter. In the year-ago period, the same was at Rs. 1,154.53 crore. These figures are after share in associate’s profit and minority interest.

In the third quarter of current fiscal year, the wind turbine maker raked in total income of Rs. 5,052.20 crore as against Rs. 4,047.71 crore in corresponding period a year ago.

On Friday, Suzlon Group chairman Tulsi Tanti said that though important progress was made on some fronts, “this has been a disappointing quarter in terms of operating performance and there remains much work to be done”.

At the end of December quarter, the group’s order book stood at 5.5 GW (gigawatts), translating to around Rs. 47,393 crore (or $7.7 billion) in value.

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