One of the worst fears of the leading wind energy company in India has come true. For years, Suzlon Energy had been flirting with financial turmoil and recently the company witnessed a rather unfortunate milestone which could define the company’s future.
As several market analysts had cautioned, Suzlon Energy has defaulted on a payment due against foreign currency convertible bonds (FCCBs). The company failed to make a payment worth US$172 million. We recently covered Suzlon’s FCCB predicament. The company had raised foreign debt worth US$547 million; of this US$375 million were converted to equity in December 2018. Suzlon did not have the option for debt-equity conversion, and in the absence of sufficient liquidity, the company defaulted on the payment due.
Suzlon Energy first informed the Singapore Exchange Securities Trading Limited (SGX), where the said bonds were listed, that it failed to make payment of the principal amount of US$172 million. Subsequently, the two Indian bourses where the share of Suzlon Energy are listed asked the company for clarification.
The company, issuing the clarification, stated that it is ‘working on a holistic solution for its debt’ and is in discussions with various stakeholders regarding the payment of outstanding bonds. The company also reiterated, likely to instill some confidence among shareholders and creditors, that it has signed an Inter Creditor Agreement (ICA) in June to resolve the outstanding debt.
In the latest development, the company has also failed to make timely payments against domestic loans. One of the Indian banks that had issued a loan to Suzlon Energy classified the company’s debt as a ‘non-performing asset’. A bank classifies an outstanding debt as a non-performing asset if a company fails to make timely repayments due against the debt. According to media reports, Suzlon Energy has taken loans from at least half a dozen Indian banks.
We had recently covered a story stating that Canada’s Brookfield Asset Management is looking to acquire Suzlon Energy and its subsidiaries. According to media reports, Brookfield is eyeing the company’s operations and maintenance arm which is a major source of revenue for the wind energy company. Adding new clients and projects has been a challenge for Suzlon for some years now due to a significant increase in competition and regulation in capacity addition.
However, the company claims to have a portfolio of 18 gigawatts under its operations and maintenance contracts globally. In India, the company services 15 gigawatts of wind energy capacity which accounts for more than 40% of the operational capacity in the country. It seems sale of the O&M arm is the only possible solution for Suzlon’s persistent debt woes. If the Inter Creditor Agreement and Brookfield’s possible takeover fail the banks can take the company to the National Company Law Tribunal to enforce bankruptcy proceedings.