Suzlon drops Rs1,800 crore rights offer, Repower deal in trouble

Suzlon drops Rs1,800 crore rights offer, Repower deal in trouble
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First Published: Tue, Oct 28 2008. 12 02 AM IST

Trouble in the air: One of the 140ft-long blades broke off at the stem of a Suzlon wind turbine in the US on Wednesday. Karen Newby /Journal Star
Trouble in the air: One of the 140ft-long blades broke off at the stem of a Suzlon wind turbine in the US on Wednesday. Karen Newby /Journal Star
Updated: Tue, Oct 28 2008. 12 02 AM IST
Mumbai: Suzlon Energy Ltd, India’s biggest wind-turbine maker, suspended a rights offer announced a month ago to raise Rs1,800 crore to buy an additional stake in Repower Systems AG.
In a separate announcement, Repower said in Frankfurt on Monday that it was in advanced negotiations with a syndicate of banks for loans to fund its growth.
It said banks had demanded that Repower refrain from entering into a domination and profit transfer agreement with Suzlon, and that the two companies had decided to comply.
Repower shares were trading down 35.6% on Monday evening India time, the biggest loser on Frankfurt’s technology index .
“Suzlon will need to offer a buyout to Repower’s minority shareholders before it can integrate their technology,” said an analyst with a foreign brokerage, who declined to be named. Suzlon has recently faced breakages on its turbines in the US.
Trouble in the air: One of the 140ft-long blades broke off at the stem of a Suzlon wind turbine in the US on Wednesday. Karen Newby /Journal Star
Suzlon suspended its plan to raise money by selling shares to existing shareholders after a slump in stock markets across the world. The Indian benchmark share index has fallen 58% this year.
“In view of the current capital market environment, it has been decided to suspend the rights issue,” Suzlon said in a release to the Bombay Stock Exchange on Monday.
Suzlon shares turned positive after the announcement, before ending 0.6% lower at Rs46.95 in a Mumbai market that fell 2.2%.
Suzlon had struck a deal in September to buy Martifer’s 22.48% stake in Repower for nearly $400 million, which would have taken its holding to 90% by December.
The Indian company said the Martifer deal was on track but it had dropped negotiations to buy the remaining minority shareholding in the German company.
Suzlon shares have dropped 88% this year.
The move to drop the rights issue won’t hamper the plans of the company, Suzlon said.
“Since the rights issue was planned to further accelerate the original plans of the company, the proposed suspension shall not impact the original plans,” the company said.
The company also said that it was suspending talks on the “domination” agreement with Repower. “In the context of the current market environment, both the parties have jointly agreed to suspend the process of negotiation of domination agreement for the time being,” Suzlon said. “However, the company will continue to pursue its strategy for sustainable growth.”
“In the current global financial meltdown, the fundamentals of the wind industry remain largely unchanged and hence the company’s business plans remain on track,” it added.
Suzlon’s billionaire founder Tulsi Tanti was seeking control and a power-transfer agreement, which would let the majority shareholder assume management of Repower. The purchase of Martifer’s stake is scheduled to take place before 15 December.
Suzlon bid successfully for Hamburg-based Repower in May last year in partnership with Martifer, topping a rival offer from Areva SA. The company bought Areva’s 30% stake in Repower in June.
IDFC Private Equity completed an investment of Rs400 crore for a 17.1% stake in SE Forge Ltd., a unit of the turbine maker, Suzlon said. Suzlon will hold 82.9% in SE Forge after the sale.
The company’s plans to drop the share offering follows just concluded rights offers by Hindalco Industries and Tata Motors that had to be bailed out by underwriters and their founders.
Reuters’ Prashant Mehra and Narayanan Somasundaram contributed to this story.
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First Published: Tue, Oct 28 2008. 12 02 AM IST