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Suzlon Debt Gains as India’s Biggest Defaulter Faces Holders

According to reports, convertible notes sold by Suzlon Energy Ltd. (SUEL), India’s biggest defaulter on debt that can be exchanged into equity, are trading at their highest level in three years as the wind-turbine supplier prepares to meet with bondholders later this week.

The Pune-based company’s $90 million of zero-coupon notes due later this month traded at 95 cents on the dollar July 4, the highest since June 2011, according to prices from Elara Capital Plc. Its $175 million of 5 percent debentures due April 2016 held at par, matching the highest since August 2011. Its stock has doubled in two months.

Turbine makers are benefiting from India’s decision last August to revive a subsidy that’s helping Asia’s second-biggest wind market recover from a record 42 percent drop in installations in the fiscal year ended March 2013. Suzlon, which hasn’t reported a profit since 2009, defaulted on its debt in 2012 after a slump in demand put a temporary stop to its debt-fueled global expansion plans.

“It seems to us there is a very strong chance the restructuring will be approved,” Antoine Bourgault, the head of credit research in London at ISM Capital LLP, said by phone. “Because of the stock moves, the offer on the table is very attractive to bondholders involved in the exchange.”

Suzlon set a consent deadline of 9 a.m. London time today for bondholders to agree to a plan to issue up to $577 million of new five-year convertible notes to replace its four existing convertible dollar bonds, plus any overdue interest.

That plan will be put to a vote on July 9 by each series of bondholders in the notes in respective back-to-back meetings at the offices of law firm Linklaters LLP in London, according to an information memorandum sent to bondholders in June. The resolution requires a quorum, and more than 75 percent of votes to pass.

Suzlon is proposing the new five-year bonds pay a 3.25 percent coupon for the first 18 months, and 5.75 percent thereafter to maturity. They may be converted into Suzlon shares at 15.46 rupees ($0.26) apiece, the memorandum shows.

“There’s just been no supply of the existing bonds in the market in the past three months,” said Sudip Shah, chief executive officer of London’s Orbit Investment Securities Services Plc. “Hedge funds have been buying them up to play with the stock, and there’s been a lot of positives on India’s economic front of late.”

Bond broker Orbit Investment Securities Services has facilitated trades in Suzlon’s 2012 convertible bonds at about 135 cents on the dollar, and its 2016 notes at about 115 cents over the past two weeks, Shah said by phone today.

Since Suzlon first announced plans to restructure its convertible debt May 3, its shares have rallied, touching 36.15 rupees on June 11, the highest since November 2011. They last traded at 27.90 rupees as of 3:35 p.m. in Mumbai.

“I expect some bondholders will want to convert their bonds and that will put some selling pressure on the stock when the whole thing goes through some time in August,” ISM’s Bourgault said.

Suzlon has also regained its position as India’s top wind-turbine supplier from Wind World (India) Ltd. after installing 403 megawatts of turbines out of an industry total of 2,055 megawatts in the year ended March 31, data compiled by the Indian Wind Turbine Manufacturers’ Association show.

India’s new government, led by Bharatiya Janata Party’s Narendra Modi, will allow the nation to overhaul its infrastructure and renewable energy industries, Suzlon Chairman Tulsi Tanti said in May. Suzlon may also sell shares on the London Stock Exchange in Hamburg-based Senvion SE, its unit that makes the machines for use offshore, Tanti said last month.

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