Wind energy firm Suzlon Energy has raised $552 million (Rs2,186 crore) through a placement of equity shares to qualified institutional buyers. A large chunk of the proceeds would be used to retire debt, especially that related to the company’s acquisition of REpower Systems AG earlier this year. As of September, Suzlon’s consolidated debt stood at Rs10,353 crore, as much as 2.61 times its net worth of Rs3,970 crore.
Debt repayments funded by the equity issue proceeds would reduce the firm’s debt-equity ratio to well below 2 times. That, in turn, will help the company raise further (debt) funds for expansion, and to buy out the other REpower shareholders, Areva and Martifer. At current valuations, Areva’s 31% stake in REpower is valued at more than Rs2,000 crore. The final purchase price could be higher, as consideration for Areva’s decision to back out of the bidding war for REpower. The purchase of Martifer’s stake would happen later, at a cost of about Rs1,500 crore. The firm is also estimated to spend Rs4,000 crore in capital expenditure (capex) over the next two years. In the six months till September 2007, Suzlon and its subsidiaries spent Rs819 crore in capex. Given these large capital requirements, the recent fund infusion would provide a breather for the company.
While Suzlon received a strong response from institutional investors for its issue, FinanceAsia reports it had to reduce its issue price from its initial guidance after a 6.4% drop in its share price on Monday. Suzlon’s shares dropped after the US energy Bill, passed last week, did not extend production tax credits beyond 2008. Analysts point out that without tax credits, incremental wind energy capacity addition will be affected. But after Monday’s knee-jerk reaction, the shares recovered nearly 60% of the losses in the next two trading sessions.
The company’s other acquisition, Hansen Transmissions International, recently raised $590 million through a public offering in London. Prior to its listing this month, Hansen was a 100% subsidiary and its capex needs were to be funded by Suzlon. Its listing, therefore, eases the funding pressure on Suzlon further. Hansen shares have risen by more than 45% from their issue price, and the firm is now valued at $3.3 billion. With this, the value of Suzlon’s holding in its overseas subsidiaries has risen sharply, which explains the sharp rise in its shares since end-October.
The dramatic change in the international securities markets since August is visible in the data for international securities issuance. The issue of international debt securities plummeted from $1,168.6 billion in the June quarter to $395.8 billion in the September quarter, according to estimates of the Bank for International Settlements. The fall in issuance has been across the board, for both developed and developing countries, and for all types of issuers.
International equity issues also fell, but they weren’t as badly hit as bonds. International equity issues announced in the September quarter totalled $89.3 billion, down from $161.7 billion in the June quarter. But issuances were higher than the March quarter’s $80.1 billlion, unlike for the bond issue market, where the last time issuances were lower was the 2005 September quarter. The equity markets, including the international equity issuance markets, have been less affected than the bond markets.
However, although international corporate debt issues from the Asia-Pacific region went down substantially in the third quarter, issues from India picked up from $1.7 billion in the June quarter to $1.8 billion in the September quarter. Equity issues announced by firms from India during the last quarter, at $6.1 billion, were lower than the previous quarter’s $7.5 billion, but well above the amounts raised in theearlier quarters.
If the credit crisis persists, would that lead to Indian corporates preferring to raise capital from domestic banks? Between 26 October and 30 November, for instance, non-food credit rose by a huge Rs62,083 crore, much higher than in the corresponding period of 2006. But whether that is a one-off rise on account of the festivals remains to be seen. However, international appetite for Indian issues is still strong, going by the recent GMR Infrastructure and Suzlon issues. The strong initial public offering and qualified institutional placement markets continue to be a huge source of funds. The cost of funds for Indian firms is therefore likely to remain comfortable.
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