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Tulsi Tanti plans $665 mn Senvion bond sale in Suzlon revamp bid

According to reports, Suzlon Energy Ltd’s Senvion SE unit is preparing to raise about €500 million ($665 million) in a bond sale this year to fund a takeover of the parent’s global business servicing wind turbines.

The plan intends to make Hamburg-based Senvion, the third-biggest maker of offshore wind turbines, more attractive to investors ahead of a proposed listing, Suzlon Group chairman Tulsi Tanti said in an interview in Mumbai. Deutsche Bank AG and Royal Bank of Canada are arranging the placement of notes, which may offer about a 5% yield.

Senvion will use the sale proceeds to buy the group’s contracts to monitor and repair 25,000 megawatts of machines worldwide—a business which generates about €500 million a year and is growing at about 20%, according to Tanti. Suzlon Energy will use the money from Senvion to pay down high-cost loans in India, where it defaulted on bonds in 2012. It’ll make Senvion a great opportunity for investors, Tanti said. It’ll be an asset-light, debt-light business with huge cash generation.

Senvion will be vying for service deals with Vestas Wind Systems A/S, which has led the industry in developing maintenance as a buffer against uncertain demand for turbines. Turbine makers favour the contracts because they offer steady streams of revenue and high margins, mimicking a strategy used by established manufacturers, such as Rolls-Royce Holding Plc, which earns more than half of its revenue from after-sales support.

The market for servicing windmills will almost double by 2020 to $13 billion as capacity grows, according to Danish advisory firm Make Consulting. In February, Vestas, the biggest wind-turbine maker, said the operating margin for its service business was 15%, compared with 3.5% for the company’s overall operating margin in 2013.

The idea is to make Senvion extremely competitive, Tanti said. It will become truly global. The plan will broaden Senvion’s geographic reach as it targets new offshore orders in Japan and the US, Tanti said. Senvion’s sales come mostly from Europe. Under the proposal, it will take on about 15,000 megawatts of maintenance contracts for installations in countries including India, the US, and Australia.

Senvion’s annuity-like cash flows from servicing will be enough to cover the fixed costs of its capital-intensive turbine-manufacturing business, Tanti said. Banks will independently price the contracts so that Senvion acquires them from the group in an arm’s length transaction, he said. Senvion’s takeover of the maintenance business will position it to raise an additional €500 million from selling a 25% stake on the London Stock Exchange by March, Tanti said. By taking Senvion public and boosting its ability to raise cash, it will be able to compete more effectively for orders against Siemens AG and Vestas, it’s biggest offshore rivals.

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