Suzlon Plans India’s Biggest Convertible Bond Default
Suzlon won’t be able to redeem two notes maturing today after bondholders rejected its request for a four-month extension, according to a statement sent to the Singapore stock exchange. The company’s default will total $209 million, and it has started talks with senior-secured lenders and bondholders on options, said two people familiar with the matter, who asked not to be identified because those details are confidential.
Suzlon, which has lost money for three years, has accumulated $2.8 billion in debt, including $965 million in revolving facilities, from acquisitions made before a global supply glut depressed turbine prices by 23 percent from their peak in 2009, according to data compiled by Bloomberg. The Pune- based manufacturer’s failure to pay will raise the amount of convertible defaults from India to $664 million this year and tops Sterling Biotech Ltd. (SLT)’s $184 million delinquency in May, according to data compiled by Bloomberg.
The notes are unsecured, and Suzlon won’t be forced to liquidate assets or wind down operations, the two people said. Suzlon is expecting fresh working capital from its banks so that operations aren’t affected, they said.
The yield on the company’s $175 million, 5 percent convertible debt due April 2016 surged 7.7 percentage points to a record today, according to pricing data from KNG Securities. Its shares, which have lost 72 percent in the past two years, fell 2.4 percent to a three-week low of 16.15 rupees in Mumbai.
The State Bank of India, Suzlon’s main lender, said the Indian banking system has loaned 140 billion rupees ($2.7 billion) to the turbine-maker, including 35 billion rupees from SBI.
“We are looking at ways to resolve the issue and need time to sort this out,” SBI Deputy Managing Director Santosh Nayar told reporters in Mumbai today. “The company followed a highly leveraged business model.”
Suzlon is under pressure to raise cash after a lack of working capital constrained its ability to complete orders in the quarter that ended June 30, Chief Financial Officer Kirti Vagadia said in August after the company reported its second- biggest quarterly loss since at least 2007.
The turbine maker expects to get $60 million by the end of this quarter from the sale of its Chinese manufacturing business, the people said. It agreed to sell the plant in June to China Power (Tianjin) New Energy Development Co.
It also filed a lawsuit last month against a unit of Edison International (EIX) to recoup a $217 million payment by February for turbines supplied to an Illinois wind farm in 2009. Suzlon hasn’t satisfied the conditions necessary to trigger payment in February, Edison spokesman Douglas McFarlan said on Sept. 28.
Suzlon requested the extension on the bonds’ maturity to Feb. 11, saying it needed time to raise funds from sources, including fresh debt and the sale of non-critical assets, according to a Sept. 18 statement.
One plan was to raise as much as $500 million through a new high-yield bond issue this year. That still remains an option, the people said.
Suzlon’s request for a moratorium on the debt was the second this year. The company got a 45-day extension to avert default in June on $360 million of convertible notes. The bonds were repaid on July 27 after the company borrowed $300 million from banks and sold two Indian wind farms.
The bonds maturing today are a zero-coupon note with a face value of $200 million and a 7.5 percent note with a face value of $20.8 million. Suzlon will default on a total of $209 million after accounting for redemption premiums on the amount outstanding.
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