Suzlon In Hot Waters Over FCCB Obligations

Troubled wind turbine maker Suzlon Energy today reported that it has failed to get its bond holders’ consent to extend the FCCB redemption by four months. Its shares in the early trade lost by 5 per cent but have recovered by 2 per cent. Our negative stance on the company has once again proved to be right and we will continue to maintain it till things improve for the company. This does not seem to be the end of the company’s long list of problems and the situation may worsen as the bond holders my ask for liquidation of some of its operating assets as was seen in the earlier case of FCCBs due in June 2012.

The company has a total FCCB obligation of USD 220 million due in October 2012. That includes USD 200 million of zero coupon bonds and USD 20 million worth of 7.5 per cent interest-bearing bonds. The FCCB redemption due date for both series of the bonds is October 11, i.e. today. The grace period for the interest-bearing bonds is October 18. The company, earlier last month and at the beginning of this month, had issued a notice to its bond holders to extend these deadlines by four months but this has been rejected. The company will now not pay the incentive fee which it had offered to the bond holders in view of the outcome.

Both the series will not be redeemed by the company in October which means that the company has nearly defaulted on these FCCB obligations. The conversion price of these bonds is about 5-6 times higher to the current market price and hence bond holders will not opt for the conversion route. Besides, the total liability of USD 220 will require the company to pay over Rs 1,100 crore to its bond holders. The company is under pressure to pay its bond holders as also to raise finance. Earlier, for the June series of its FCCBs the company had received a 45-day extension and it repaid that liability by selling some of its wind power assets and also by raising debt. With the default uncertainty on the bond obligation, its shares may see another low in the coming days if the company fails to raise the funds.

Suzlon Energy is already carrying over Rs 13,000 crore of debt on a consolidated basis. It also has further FCCB obligations of USD 90 million in July 2014 (conversion price 90.380) and USD 175 million due in April 2016 (conversion price 54.01). With these further FCCB liabilities we believe that the company would not get much time even if it handles the current FCCB issue successfully. The FCCB redemption premium of nearly 150 per cent is also quite steep and may further queer the pitch for the company.

Also, one of its Dutch suppliers, Multi-Fix, is seeking USD 1.9 million and according to media reports, Multi-Fix failed to recover the amount despite several attempts and is planning to set up a winding up petition against the company. Considering all these various hurdles along with poor business performance indicating loss at the operating level and the debt crisis in Europe, the time ahead may be very tough for the company. Shareholders should therefore exit the counter at the earliest.