Suzlon Energy Wins Cash to Pay Largest Wind-Turbine Debt: India Credit
Bonds of Suzlon Energy Ltd. (SUEL), the most indebted wind-turbine maker, are rallying as its buyout of a German unit will improve access to cash and technology.
The yield on its 7.5 percent convertible notes due June 2012 dove to a 10-month low of 15.45 percent today, down from 18.06 percent yesterday and a record of 28.5 percent on March 7, Nomura International prices show. The Indian company said this week it will buy the 4.8 percent stake held by other investors in its Repower Systems AG (RPW), letting it consolidate accounts and get access to the Hamburg-based company’s $389 million of cash.
“This gives investors confidence they will be paid when the bonds are redeemed next year,” Raj Kothari, a convertible notes trader in London at Sun Global Investments Ltd., said by telephone on April 5. “By buying out the minority shareholders of Repower, Suzlon gets Repower’s technology and cash.”
India is introducing policies to cut financing costs for alternative energy as oil prices surge to a two-year high and nuclear plants are reexamined following Japan’s atomic accident. Those improve the outlook for the Ahmedabad, Gujarat-based company, which is scheduled to start repaying part of its $2.7 billion debt in 2012 when a grace period with its lenders ends.
Suzlon, which sold $150 million of 5 percent $convertibles on April 5, has $2.1 billion in loans and $629 million of foreign-currency bonds that can be exchanged for shares, according to data compiled by Bloomberg. Suzlon said in an e- mail response to questions it plans to use the $150 million raised from the bond issue “for a range of strategic initiatives.”
Debt Overhang
Vestas Wind Systems A/S, the world’s largest wind-turbine maker, has $931 million of debt, with $887 million due in 2014. The yield on Vestas’s 600 million euros ($860.5 million) of 4.625 percent bonds due March 2015 dropped to 4.6 percent on April 6 from 5.375 percent on Dec. 31, according to prices provided by Rabobank International Prices.
“Suzlon’s debt overhang has been partially addressed and if they can execute their order book, I see the yield on their convertibles falling further,” said Atul Gharde, a Hong Kong- based credit analyst at SJS Markets Ltd., who recommends buying Suzlon’s debt. “With the Indian equity market rallying, I won’t be surprised if more companies issue convertibles.”
India’s benchmark Sensitive Index rose 9.1 percent in March, the first monthly increase this year. The $150 million offering by Suzlon was the first convertible bond sale this year by an Indian company, according to data compiled by Bloomberg.
Quarterly Losses
Suzlon, with four straight quarterly losses, refinanced 100 billion rupees ($2.3 billion) in loans a year ago taken from Citibank Inc., Deutsche Bank AG, Barclays Plc (BARC), ICICI Bank Ltd. (ICICIBC) and other banks after the global recession dried up orders for wind farms and squeezed margins for turbine sales.
The turbine manufacturer’s shares have declined 29 percent in the past year in Mumbai trading, while the Bloomberg Wind Energy Index has declined 0.1 percent. The index tracks 64 wind power generators and suppliers globally, including Vestas, Siemens AG and Alstom SA. Suzlon gained 7.7 percent yesterday.
Suzlon’s net debt of $2.2 billion is the most among the 10 biggest wind-turbine makers, according to Bloomberg New Energy Finance. That ranking excludes General Electric Co., which is a diversified manufacturer and financier, and Enercon GmbH, which is private and doesn’t disclose to regulators.
‘Execution is Key’
“For Suzlon, execution is the key now,” said Tobias Bettkober, who helps manage the HAM Convertible Bond Fund and Convertible Growth Fund at Holinger Asset Management AG in Zurich, which bought Suzlon’s latest debt and owns the company’s older convertibles. “On the credit side, I am more confident Suzlon will do ok.”
Better finances at Indian companies including Suzlon may increase demand for securities sold overseas, said SJS’s Gharde said. Billionaire Anil Ambani’s Reliance Communications Ltd. (RCOM), saddled with $7.2 billion of debt, said last month that it saved 5 billion rupees by borrowing from a group led by China Development Bank Corp.
Indian companies, led by banks, sold the most foreign- currency bonds in a first quarter since 2007 as central bank Governor Duvvuri Subbarao raised borrowing costs eight times in the past year to curb inflation.
Bank of India and Bank of Baroda are among borrowers that issued $3.4 billion of bonds overseas this year -- the most since companies raised $4.9 billion in the first three months of 2007 -- obtaining lower yields than they’re paying on rupee debt, according to data compiled by Bloomberg.
Relative Rates
Benchmark Indian interest rates that rose to 6.75 percent on March 17 are higher than China’s at 6.31 percent and compare with the U.S. Federal Reserve’s range of zero to 0.25 percent.
The yield on India’s 10-year government bonds has slid 24 basis points from a 27-month high of 8.23 percent reached on Jan. 17 as overseas investors poured a net $2.4 billion into rupee debt this year. The rate on the 7.8 percent security due May 2020 climbed one basis point to 7.99 percent today, according to data compiled by Bloomberg.
The difference in yields between Indian government debt and U.S. Treasuries due in a decade has narrowed to 448 basis points from a six-week high of 479 reached March 16. Rupee bonds have returned 2.1 percent this year, the best performance in the region after Indonesia, according to 10 Asian local-currency debt indexes tracked by HSBC Holdings Plc.
The extra yield investors demand to hold top-rated Indian corporate bonds for five years instead of government debt has shrunk to 117 basis points from an 18-month high of 132 on Feb. 23, Bloomberg data show.
Global funds’ debt investments in India contributed to the rupee’s 1.2 percent advance this year. The currency gained 0.6 percent, the most since March 1, to 44.17 per dollar yesterday.
The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, has dropped 14 basis points in the past month to 164 basis points, according to CMA prices.
Credit-default swaps pay the buyer face value for the underlying securities should a borrower breach its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net
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