Suzlon's Worst Slump Since 2014 Revives Debt Concern

  • Stock move due to `temporary' factors, Suzlon official says
  • Wind turbine maker confident it has liquidity for payments

Suzlon Energy Ltd. had its sharpest five-day plunge in 16 months this week, reviving concerns the wind-turbine maker behind India’s biggest corporate default may again face difficulty with its debts.

The stock fell 22 percent to 15.75 rupees this week in Mumbai, the most since September 2014, when new shares began trading that were converted from bonds sold by the company based in Pune, India.

Suzlon’s stock traded as low as 13.75 rupees on Feb. 3, falling below the threshold the company is required to meet to convert into equity $257 million in bonds due in July 2019. Executives led by Chairman Tulsi Tanti have indicated they expect the bonds will be converted, reducing a key portion of the company’s $315 million in corporate debt.

“The concern is not over operating performance of the company and order inflow,” said Tushar Pendharkar of the wealth management firm Right Horizons Investment Advisory & Wealth Management. “The market reaction could be over balance sheet health."

A Suzlon official said in an e-mailed response to questions that the “share price movement is temporary and not linked to fundamentals” and that the company “is in a very different position” than in 2012 when it defaulted. The statement noted $647 million in bonds due to mature in 2018 probably will have maturities extended to 2023 and that Suzlon has “comfortable liquidity” and that executives are confident the 2019 bonds will be converted.

On Feb. 1, Tanti told analysts in a conference call that Suzlon’s growth prospects are strong, since India is ladling out incentives for renewable energy.

“I’m expecting the next financial year the minimum the Indian market will do is 20 percent growth, and Suzlon will grow more than the market,” Tanti said, according to a transcript of the call.

Losses Continue

Unprofitable since 2009, Suzlon posted another quarterly loss on Jan. 29, triggering the slide that also dragged down Inox Wind Ltd., a competing turbine company. Inox has fallen 39 percent since its peak shortly after its initial public offering in April.

Suzlon’s loss of 1.13 billion rupees ($16.7 million) for the fiscal third quarter ended Dec. 31 was narrower than the 65.38 billion-rupee deficit in the same period the previous year.

While Suzlon is expecting growth, there’s unease that the wind industry is slowing as Prime Minister Narendra Modi’s government pushes more investment into solar power, potentially upending the company’s ambitions. India is seeking 60 gigawatts of wind capacity to be installed by 2022, while the target for solar is 100 gigawatts.

“Wind now is where solar was two years ago in India, and it needs government support in terms of clarity on power purchase agreements," said Rupesh Agarwal, a partner at BDO India LLP.

The cost of solar powerhas plunged in recent auctions, drawing in investment from big overseas companies such as SunEdison Inc. of the U.S. and SoftBank Group Corp. of Japan. Suzlon too has branched into the solar business, winning contracts in a government auction last year for its first-ever photovoltaic project.

Debt Concern

The slide in Suzlon’s stock price detracted from the company’s assertions about growth, raising questions about how it will repay the corporate debt coming due over the next three years if the stock doesn’t rebound.

The $257 million of bonds due in 2019 are denominated in dollars, which have risen almost 10 percent against the rupee in the last year. They’re convertible into stock so long as Suzlon trades above 15.46 rupees for at least 30 days, and Suzlon has the option to require conversion after July, Chief Financial Officer Kirti Vagadiasaid on a call with analysts in November. 

This week, Vagadia pointed out that “one can safely assume” that the bonds eventually are converted into equity.

The price on Suzlon’s 2019 convertible bonds plunged to as little as 92 cents on the dollar on Thursday from 122 cents on Feb. 29, the day the results were published. The bond was trading at 100.5, just above face value on Friday, below the average of 135 cents on the dollar it has averaged over the past year, according to Bloomberg data.

Suzlon defaulted on its debts in October 2012 and renegotiated terms with bondholders, resulting in a deal in July 2014 to issue the convertible notes. A.K. Prabhakar, head of research at IDBI Capital Market Services said concern about Suzlon’s ability to repay the bonds has never gone away because the it remains unprofitable.

"We’re recommending clients to exit wind sector companies, both Suzlon and Inox," Prabhakar said.

Others are not so pessimistic, and the stock rose 9.4 percent on Friday, paring losses from earlier in the week. Rajendra Wadher, director at PRB Securities Ltd., said some of the decline may have been an investor converting the foreign currency convertible bonds, FCCBs, into equity and then selling the stock.

Bonds Converted

“The stock fell as overseas investors converted FCCBs," Wadher said, adding that more conversions would be a bad sign for the stock.

Suzlon’s drop may also be a buying opportunity, said Raj Kothari, an EM fixed income investor at Sun Global Investment Ltd.

“The falling stock price can be attributed to some funds converting their bonds, but that doesn’t mean lack of confidence in the company,” Kothari said. “We’re ourselves looking to buy their bonds worth $3 million to $4 million at this time and can pay a premium on that." 

(Corrects 15th paragraph to remove to reference to letters of credit.)
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