Bondholders refuse to bail out Suzlon

Suzlon Energy Ltd, after teetering along for the past few years, seems to be approaching a loan default. The company was due to pay foreign currency convertible bondholders $220.8 million ( ₹ 1,170 crore) along with interest on Thursday. Knowing it wasn’t possible to meet the deadline, the company had sought an extension of four months. But the bondholders refused, Suzlon announced on Thursday.

add_main_imageSuzlon’s bondholders could well file a winding up petition, unless of course, the company can find favour with Indian banks again and pay them back. In June, when the company had to redeem bonds worth $360 million, it managed to get a 45-day extension from bondholders and was eventually able to raise debt from a consortium of banks including State Bank of India, Bank of Baroda and ICICI Bank Ltd. In August, an SBI employee was appointed as a director on its board to give the consortium representation.

Back then, this column pointed out that it was strange for senior debtholders to finance the repayment of junior debt, and that one possible reason was that they didn’t want the company to go into liquidation and find themselves stuck with large non-performing loans.NextMAds

But with Suzlon running losses, lenders have to eventually face the possibility of a default. What’s more, given its extreme indebtedness, the company has not been able to garner sufficient working capital loans, which has curtailed its ability to meet market demand. In short, Suzlon now seems to be stuck in a vicious cycle. Extending repayment deadlines and giving fresh loans have only aggravated the problem. The company’s FCCB bondholders’ decision to deny another extension may actually turn out to be helpful for all stakeholders.

Suzlon shares fell 2.11% to ₹ 16.20 each on BSE on Thursday, while the Sensex was up 0.93% at 18,804.75 points.