Founding investors of Suzlon Energy Ltd. (SUEL), India’s biggest wind-turbine maker, sold a stake to raise cash for the company to invest in land and infrastructure, the chairman said, rebuffing speculation over other motives.
Suzlon needs to invest in property for wind farms and power distribution equipment to maintain its dominant share of the Indian wind market, which is expanding by 40 percent annually, according to Chairman Tulsi Tanti. The shares dropped as much as 4 percent today, the most in two weeks.
“We need some liquidity” to fund expansion, he said in an interview this week in Durban, South Africa, at the international climate talks. There’s “nothing wrong” with founding investors, known in India as “promoters,” selling small stakes that will bring big benefits, he said.
Tanti’s remarks counter speculation by analysts and traders that the 1 billion rupees ($19.3 million) in proceeds may have been raised to meet margin calls on bank loans backed by shares. Samanvaya Holdings Pvt., a holding company of various promoters, sold 2 percent on Nov. 17 as Suzlon slid toward an all-time record close of 21.35 rupees and its second-worst month on record in the stock market.
“It’s not a good sign because it could mean they’re running out of cash,” said Raj Kothari, a London-based bond trader at Sun Global Investments Ltd., which owns Suzlon convertible debt. “Even if he’s going to put the money back in the company, that’s not reassuring,” Kothari said by phone.
Suzlon lost 40 percent in November for its second-worst month since it began trading in 2005, according to data compiled by Bloomberg. “With the share price falling, they may have to get money for the company to meet margin calls,” Kothari said.
The company denied that suggestion in an e-mailed response to questions from Bloomberg. Separately, it said promoters have been increasingly pledging shares against loans either to borrow more, to repay loans or for minor “top-ups” of collateral.
Declining stock prices in Asia’s worst-performing major market this year has forced Indian companies to pledge shares worth 1.1 trillion rupees as collateral to banks for loans as of Nov. 18, according to a report by Standard & Poor’s Indian unit Crisil Ltd.
The shares slid 3.4 percent to close at 22.95 rupees today in Mumbai trading. The stock has fallen 58 percent this year.
“In the backdrop of inadequate disclosure levels on share pledging, investment in such companies exposes an investor to severe price volatility,” Crisil said.
Suzlon has $569 million of foreign-currency convertible bonds that mature next year, the company said in an e-mail response to questions on Nov. 30.
Tanti declined to say whether the company was approaching bondholders to buy back those notes before they mature. They’re apt to miss the threshold at which investors would convert them into equity.
“We have a very clear plan,” Tanti said. “We are comfortable to repay bondholders in a time schedule.”
If the stock price continues to fall, Suzlon’s credit spread might increase, meaning its borrowing costs for new debt or for refinancing existing loans could also rise, Priyo Mayengbam, a Singapore-based analyst at Frontier Investment & Capital Advisors, said in a Nov. 18 response to questions.
A wider group of Suzlon’s founding shareholders had pledged a total of 76 percent of their holdings as of Oct. 21 in exchange for loans, according to data from the BSE Ltd. and National Stock Exchange of India Ltd. In total, 41 percent of the company’s outstanding shares have been posted as collateral.
When a large amount of shares are pledged, it reduces the founders’ ability to absorb volatility in the stock price, said Atul Gharde, a Hong Kong-based credit analyst at SJS Markets Ltd.
“Falling stock can lead to margin calls, which leads to more shares pledged or dumping of stocks by creditors to cover losses, a negative spiral,” he said.
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