March 28 (Bloomberg) -- Suzlon Energy Ltd.’s ability to repay $700 million of debt may be worse than expected after U.S. customer Edison International said the earliest it’ll pay off a contract with the turbine-maker is next year.
Suzlon, the third-biggest wind-turbine maker by sales, said last month that it hoped to recoup a $206 million payment from Edison before June when the first of its foreign-currency convertible bonds matures. Edison’s latest 10-K filing said the soonest that could happen is next February.
“Suzlon’s cash crunch seems more severe than expected,” Charanjit Singh, alternative energy analyst in Bangalore for HSBC Bank Plc, said yesterday. Singh estimates the company may fall short by as much as 30 billion rupees ($592 million) in repaying $700 million of debt due over the next 12 months.
Edison Mission Group, the unit that bought Suzlon turbines, and Suzlon declined in e-mails over the last week to elaborate on whether Edison may pay part of the $206 million to Suzlon prior to February, saying the agreement is confidential.
“On the broader issue of managing our debt, we continue to be confident of meeting all our obligations,” Suzlon said yesterday in an e-mail.
The payment issue centers over Edison’s 240-megawatt Big Sky wind farm in Illinois, financed by Suzlon with a loan in October 2009 that has a “final maturity” in 2014, according to its Feb. 29 filing. Early repayment could happen “as early as February 2013,” Edison said.
Attempts to Collect
Suzlon has been trying to collect from Edison since at least May 2010, when Chief Financial Officer Robin Banerjee said payment was expected later that year. Questioned by analysts on Feb. 13, Kirti Vagadia, head of corporate finance, said Suzlon may collect “even in this quarter.”
The company may face $389 million in bond redemptions this year if investors holding its convertible notes choose not to swap them for shares. The stock closed today 72 percent below the conversion price of the zero-coupon bond due June.
Suzlon may have 7.5 billion rupees less than it needs to pay bondholders in June, HSBC’s Singh said. That’s based on Suzlon’s cash flow excluding that of its German unit Repower Systems SE.
The yield on that note rose 3.4 percent today, according to data from Cantor Fitzgerald LP. Suzlon shares closed at their lowest in a month, declining 2 percent to 26.9 rupees in Mumbai.
Sell a Stake?
Suzlon may seek options to raise cash such as selling a stake in other businesses or getting dividends or advances from Repower, Singh said yesterday. Suzlon can’t tap 750 million euros in financing raised by Repower on Feb. 29 to pay off debt, Repower said in an e-mail last week to Bloomberg News.
Suzlon plans to raise $100 million selling “non-core” assets, Vagadia said. The company has $100 million of cash and expects $250 million more in free cash flow from operations over the next 12 months excluding the Edison payment, he said.
The Pune-based company has met France’s Alstom SA, General Electric Co. and Siemens AG, which may bid for Suzlon’s Repower Systems SE unit, the Wall Street Journal reported on March 15.
Alstom and Suzlon denied the report. Siemens won’t buy Repower, Siemens board member Michael Suess told the Journal on March 20.
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