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Bond Agreement May Prod Suzlon to Break Even This Year

Suzlon Energy Ltd. (SUEL)’s agreement with its largest bondholders to restructure $485 million of debt may allow Asia’s second-biggest wind turbine maker to break even this financial year for the first time since 2011.

The deal eliminates a potential threat of liquidation that had loomed over the manufacturer since October 2012 after causing India’s biggest convertible-bond default. That could prod Suzlon toward recovery after four straight years of losses and last year’s ceding of its position as the nation’s top wind-turbine maker for the first time in at least a decade.

Suzlon’s board approved a plan on May 3 to issue new five-year convertible bonds maturing by March 2020, replacing notes originally due in 2012, 2014 and 2016. The new price for conversion into equity was reduced by as much as 84 percent to 15.46 rupees, meaning Suzlon’s share price doesn’t need to appreciate by as much for investors to profit.

Suzlon rose as much as 12 percent to 15 rupees, the highest in almost 14 months. The shares rose 5.6 percent to 14.15 rupees in Mumbai as of 10:05 a.m. The price slumped from a record 454.60 rupees on Jan. 8, 2008, as it struggled to pare 160 billion rupees of debt racked up in overseas acquisitions.

The Pune-based company could achieve “cash break-even” this year as the bond settlement restores customer confidence and improving liquidity boosts operations, said Charanjit Singh, a Bangalore-based HSBC analyst. The last time Suzlon generated more cash than it needed for expenditures and dividends was three years ago, according to data compiled by Bloomberg. Suzlon may return to profit by March 2016, he said.

July 9 Meeting

Suzlon failed to repay $209 million of notes in October 2012, triggering a clause allowing all outstanding bondholders to demand immediate repayment. Those investors could have filed a winding-up petition to push Suzlon to liquidate.

The deal removes “a stigma on the company” about that threat, which unsettled customers and caused 90 percent of suppliers to stop extending credit and demand bank guarantees that tied up cash needed to carry out orders, Kirti Vagadia, group head of finance, said in a phone interview yesterday.

Bondholders will approve the deal on July 9 because a committee representing a majority of the investors has already signed off on it, Vagadia said. They’ve also committed not to backtrack or pose any obstructions until Aug. 15 to allow Suzlon to complete formalities, he said.

The new bonds will have a coupon rate that will step up over the five years, and the yield will average out to approximately 5 percent, Suzlon said in an e-mailed statement on May 3.

‘Temporary Relief’

The restructuring covers all of the 2012 and 2014 notes and half of the 2016 ones, according to the statement. Suzlon has honored a request by some investors holding the 2016 series to keep those notes, Vagadia said.

The bond extension offers “temporary relief,” said Shantanu Jaiswal, a Delhi-based wind analyst for Bloomberg New Energy Finance. “Suzlon must focus on increasing its share in the Indian market and it also needs to boost exports to generate sustainable volumes” to meet future obligations.

Repayment of another 95 billion rupees ($1.6 billion) in loans from Indian banks begins to ramp up starting 2019, according to a February investor presentation. That debt was restructured in April 2013 by lenders led by the State Bank of India.

Since April, the company has made progress in efforts to raise cash, including the sale of a U.S. wind farm and an 850 million-euro loan refinancing by its German offshore turbine unit Senvion SE.

To contact the reporter on this story: Natalie Obiko Pearson in New Delhi at npearson7@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net Paul Verschuur, Abhay Singh

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