Suzlon Energy Ltd’s shares have done well in the latest rally in the markets, having risen by over 24% since September, while the Nifty has gone up by around 12%. But this hardly makes up for the sharp underperformance in the past many months—so far this year, Suzlon shares have underperformed the market by as much as 40%. Since January 2009, the company’s shares have underperformed the market by an extraordinary 57%.

While there has been some positive news flow, it’s hardly enough to reverse the declining trend of the company’s shares. Last Friday, Hansen Transmission International NV, in which Suzlon has a 26% stake, announced it has received a bid of €75 million (Rs464.62 crore) for its industrial gearbox unit, which accounts for around 16% of its revenue.

Graphic: Naveen Kumar Saini/Mint

Hansen would use the funds to retire its debt. Part of the deal with Sumitomo Heavy Industries Ltd, which has made the offer, is that it would restructure its industrial gearbox plant, which may result in job cuts amounting to around 17% of the unit’s workforce. Needless to say, this is a positive development for Hansen’s shareholders, including Suzlon.

A few months earlier, Suzlon had managed to restructure its debt, which gave it considerable relief with its repayment obligations. But its high debt position of over Rs10,000 crore seems to have affected customer confidence.

According to some analysts, while some of the company’s competitors have started winning orders for wind turbines in developed markets after the slowdown, Suzlon has continued to struggle. Most of the company’s new orders are from the domestic market. But this clearly isn’t sufficient to drive the company’s consolidated performance.

The company needs to win more orders in developed markets and for that it needs to reduce its debt position. With the markets reaching all-time highs, Suzlon seems to have smelt an opportunity to raise equity capital.

Its board is seeking enabling approval from shareholders to raise up to Rs5,000 crore by issuing equity shares and/or convertibles. At current price, this would result in a dilution of about 36%.

The last time the company had attempted raising equity through a rights issue which involved high dilution, its shares had plunged. But then, that was in late 2008, soon after the Lehman Brothers Holdings Inc. debacle. This time could be different.