Will debt restructuring lift Suzlon from its nadir?

Suzlon’s high indebtedness, inability to raise working capital has restricted it from servicing orders
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First Published: Sun, Feb 17 2013. 04 05 PM IST
A file photo of Suzlon windmills in Jaisalmer, Rajasthan. Suzlon’s losses widened to `1,154 crore for the three months ended 31 December compared with `286 crore a year earlier as the company faltered on execution. Photo: Mint
A file photo of Suzlon windmills in Jaisalmer, Rajasthan. Suzlon’s losses widened to Rs.1,154 crore for the three months ended 31 December compared with Rs.286 crore a year earlier as the company faltered on execution. Photo: Mint
Updated: Mon, Feb 18 2013. 01 15 AM IST
Suzlon Energy Ltd’s earnings for the three months ended 31 December continued a slide that had started some three years ago. Losses widened to Rs.1,154 crore, compared with Rs.286 crore a year earlier as the company faltered on execution.
The problem is well known. Suzlon’s high indebtedness and the resultant inability to raise working capital has restricted it from servicing orders. The lack of working capital bites, especially at a time when the firm’s order book stands at $7.7 billion.
In the December quarter, consolidated revenue declined by one-fifth from a year ago. The situation was so dire that the Indian unit, Suzlon Wind, posted a revenue of only Rs.31 crore, about 98% less than a year ago.
This had two implications. One, the company had to pay penalties for delayed execution in the Indian market. Two, the markets where it was actually able to sell were low-margin markets, which dragged down operating margins.
In that event, it made a loss of Rs.313 crore at the earnings before interest, taxation, depreciation and amortization (Ebitda) level in the December quarter, compared with an income of Rs.406 crore a year ago. It has been making operating losses for the past couple of quarters as well.
Simply put, the company is not generating enough money to even cover its interest expenses, which amount to Rs.450 crore a quarter. It was no wonder that Suzlon defaulted on repayment of its foreign currency convertible bonds (FCCBs) worth $209 million (Rs.1,148 crore), which were due in October.
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To be sure, the firm has been thrown a lifeline in the form of a Rs.9,500 crore loan-restructuring programme. Banks have agreed to allow Suzlon to suspend its principal and term-debt interest payments for two years, given it a 3% reduction in interest rates, and also a six-month moratorium on working capital. They have, besides, agreed to advance another Rs.1,800 crore as working capital.
That should free up cash to the extent of $1 billion, according to Suzlon, and let it get on with executing orders. But this proposal is expected to be implemented only by the end of March. While the company is also looking to sell some $500 million worth of non-critical assets, which should let it settle some debt, that is a long-term process. Secondly, Suzlon might have to pay some cash upfront to the holders of its October 2012 FCCBs as it attempts to restructure them since they will be junior to other similar instruments that come up for maturity in 2014 and 2016.
Thus, the company will suffer for at least one more quarter before it can resume normal operations.
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First Published: Sun, Feb 17 2013. 04 05 PM IST
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