Senvion sale gives Suzlon enormous opportunity to cut down on debt: Tulsi Tanti3 min read . Updated: 23 Jan 2015, 01:26 AM IST
Suzlon's target is to ramp up volumes in India, the US and emerging markets such as China, Brazil, South Africa, Turkey and Mexico
Why did you decide to sell Senvion?
You have to understand the classic conflict of time and situation of Suzlon Energy. Debt is building up at one side while Indian and emerging markets are growing more positive towards renewable energy opportunities. I need a strategic solution for this to cut down debt and participate in the growing opportunities. There were a lot of discussions held.
We had two options. One was listing through an initial public offer (IPO). Second was a sale if we are getting reasonable valuation without losing technological advantage. Finally, we have decided to sell as it is giving us an enormous opportunity to reduce the debt. To tap new opportunity, I need to sell it. If it was an IPO, I could only retire a part of debt and I need to offer some discounts too.
How will the deal help to bring down the debt?
It is a ₹ 7,200 crore deal. Out of this ₹ 6,000 crore will go to 19 banks for repaying the debt in proportion to their loans. The remaining ₹ 1,200 crore would be used for our operations as working capital. Post the deal, banks have also agreed to extend more working capital so that I can aggressively ramp up my business.
On the debt side, 50% of interest will come down as our total debt is at ₹ 16,500 crore. Our yearly interest cost is around ₹ 1,600 crore and now the same would be around ₹ 800 crore for the next financial year. Also, there will be a reduction of ₹ 3,000 crore as FCCB (foreign currency convertible bond) holders will slowly convert their bonds into equity by next year. All these will allow us to grow more aggressively.
How will Suzlon look like after the Senvion sale?
Both Suzlon and Senvion were operating as independent companies. Senvion’s market and product offerings and Suzlon’s market and products were always separate.
It is not that Senvion was helping Suzlon, but it was Suzlon helping Senvion to grow its topline (revenue) by five times and the bottomline (profit) by seven times in the past.
We are not losing anything as Suzlon is getting technology as a part of this deal without paying anything. You may say that we are losing out in Europe. But there are other markets. Now I have to take a relook at the business plan to decide which are the 10 new countries I should focus on. Next year, we will come out with a three-year rolling plan to identify the newest markets where Suzlon should focus on.
Why is Senvion’s valuation low?
It is not low. If you compare with peer group companies in Europe, we are getting more or less the same valuations. Suzlon had bought Senvion for €1.4 billion in 2007 and I am selling at ï1.1 billion in 2015.
Prima facie, it may look like I am selling at over 25% discount. But one should also consider that we bought Senvion when the currency exchange rate was ₹ 60 for a euro. Now it has gone up to ₹ 72. So I have 20% appreciation in currency exchange terms. Therefore, net to net, I am not losing.
What about profitability of Suzlon sans Senvion?
We will be profitable by the next financial year with our interest cost and debt getting halved. We will be in a more comfortable position as and when FCCB holders convert bonds into equities. Our target is very clear—to ramp up the volumes in India, the US and emerging markets such as China, Brazil, South Africa, Turkey and Mexico.
We are the only company that offers complete solutions in the renewable space with its wind and solar hybrid technology services.
Was there pressure from lenders to sell Senvion?
Zero pressure. As per our corporate debt restructuring plan, we have no obligation to repay the money at this moment. Senvion sale was not the decision of lenders. On the contrary, bankers were helping us.
As an entrepreneur, will you dare to make more such acquisitions?
I am an entrepreneur by birth and by karma. As an entrepreneur, I don’t have a target, but dream to create a competitive environment, a profitable organization and identify the next big thing. Currently, we are on a consolidation phase. We need to increase volumes. My team is working on the same. After that we will certainly explore acquisitions.