Tuesday, July 14, 2015

Why Suzlon is the Model to Follow in Debt Reduction

While most industry sectors have improved their fundamental and market performance across India in recent times, highly leveraged companies across most sectors have failed to deliver. Some sectors like power, infra, steel, realty etc that are the most indebted have the maximum number of underperformers. Despite multiple rate cuts by RBI and positive action by the Indian Government on several bottlenecks, these companies have failed to respond due to the spiralling nature of long-term and massive debt. Suzlon Energy, India's leading renewable energy player, has been a sharp exception to this situation.

The uncontrolled debt burden on banks, especially public sector banks, has prompted RBI to make Structured Debt Restructuring (SDR) even more powerful, by allowing lenders to take control of such companies from the management.

For the most part of FY’15, Suzlon was saddled with a staggering debt of Rs. 16,500 crore. Though it was not extremely high according to the ‘standards’ of Indian power and infra companies - GVK Power has 22,000 crore in debt, Reliance Power has around 27,000 crore, & Adani Power has around 40,000 crore - Suzlon Founder and CMD Tulsi Tanti finally decided that enough is enough, and took the painful steps of debt reduction.

Suzlon sold off its largest international subsidiary, Senvion, formerly called REPower, for around Rs. 7200 crore.

Rs. 5000 to Rs. 6000 crore from this sale proceeds went to repay some of its highest cost rupee denominated debt.

The company was an early mover into the CDR mechanism provided by the lenders, by which much of its interest was converted into equity favouring its banks. SBI, one of its largest lenders, and the country's largest bank, has commended Suzlon promoter Tulsi Tanti's decision to come out of massive risk by this proactive step.

During the fiscal, Suzlon has also restructured its FCCBs to lower-cost coupons which are getting converted into equity, further easing the debt burden.

Suzlon is a vertically integrated wind power company, which makes and installs windmills. The company manufactures blades, generators, panels, and towers in-house and creates wind farms across the world in 17 countries including USA, Mexico, China, Brazil, & India.

Having around 6900 employees, belonging to 17 nationalities, the international sales business of Suzlon is managed out of Aarhus, Denmark, while its global management office is in Pune, India.

Suzlon's diverse client portfolio includes companies from a range of industry sectors, including private and public sector companies, power utilities, and independent power producers.

Post Senvion sale - which accounted for 65% of Suzlon’s revenues - Tulsi Tanti’s plan is to focus on markets like India, China, & US, with the help of billionaire investor Dilip Shanghvi, founder of Sun Pharma, who has recently invested Rs. 1800 crore into Suzlon.

Chairman Tulsi Tanti is hopeful of rapidly making up what Suzlon lost by way of Senvion sale, from the booming renewable space in India. Towards this, Suzlon is entering the solar farm business, and plans to pioneer hybrid farms that bring together wind and solar generators, as well as India's first offshore wind farm.

More companies from indebted sectors like power, infra, steel, realty etc would be forced to emulate Suzlon and go for rapid asset sales in the coming days to lessen their debt burden and thus stay afloat for the better days, which may be still a couple of years ahead.

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