Mumbai: Suzlon Energy Ltd, engaged in a bidding war with Areva SA for Germany’s Repower Systems AG, has dropped its plans to raise Rs5,000 crore through the issue of equity-linked securities, even as its shares trade a third off their 52-week high on the Bombay Stock Exchange (BSE). The issue was approved by shareholders in a postal ballot on 28 June 2006.
“We want to utilize and leverage our balance sheet by going for debt instead of equity which will benefit existing shareholders,” said Tulsi Tanti chairman and managing director of Suzlon, the world’s fifth-largest manufacturer of wind energy systems. The company had proposed refinancing its $563 million (Rs2,308 crore) acquisition of Hansen Transmissions International NV (in April 2006) through an issue of foreign currency convertible bonds. The Rs5,000 crore issue was also supposed to fund future growth in the business.
Suzlon plans a capital expenditure of Rs3,300 crore this year to expand capacity from 2,700 megawatts (MW) per annum to 4,200MW. The move to use debt rather than equity is also a fallout of the 32.65% decline in the company’s stock price from a 52-week high of Rs1,510 to Rs1,138.30 at close on Tuesday on BSE.
Suzlon’s high share price had made Tanti one of the 10 richest in the Forbes list of Indian billionaires. By deciding not to issue fresh equity to fund buys, Tanti hopes to minimize the dilution of earnings per share, which would help prop up Suzlon’s share price. The promoters hold 69.72% of Suzlon, which ended on Tuesday with a market capitalization of Rs32,755.72 crore.
“We have refinanced the all-cash acquisition of Hansen by replacing the one-year foreign currency bridge loans taken from Barclays, Deutsche Bank, State Bank of India and ICICI Bank with five-year loans syndicated by a consortium of banks led by ABN Amro Bank. The euro-denominated loans carry an effective interest rate of 5.15% compared to slightly less than 5% per annum for the bridge loans,” said Kirti Vagadia, head, corporate finance at Suzlon.
Vagadia said interest rates on the five-year loans could dip as Suzlon’s debt-equity ratio improves. “For the Repower acquisition, our special purpose vehicles will raise foreign currency loans at a cost of 1.5 percentage points above the London inter-bank offer rate. These loans will be guaranteed by Suzlon,” Vagadia added.
Tanti said the rationale to use debt to fund growth also arises from the potential of a market growing at 25% annually. A company which expects rapid growth can afford to take on more debt that it can pay off faster due to higher earnings.
“We have a growth market and a good outlook and we expect to continue to grow at 50% on a compounded annualized basis in the foreseeable future as well. We expect to use the full 1,200MW of annual manufacturing capacity which went onstream in China and the US in January 2007 in this fiscal year,” said Tanti.