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Suzlon Lenders Seek To Avoid Second Debt Restructuring Through Stake Sale

Bankers say that a second restructuring of Suzlon’s debt is not feasible.

Suzlon Energy Ltd. trucks and wind turbines are seen in the Nandurbag region of India (Photographer: Santosh Verma/Bloomberg News)  
Suzlon Energy Ltd. trucks and wind turbines are seen in the Nandurbag region of India (Photographer: Santosh Verma/Bloomberg News)  

Lenders to Suzlon Energy Ltd. find themselves back where they started about six years ago.

The renewable energy firm, which had restructured debt under the Corporate Debt Restructuring programme in 2013, is once again in financial trouble. This time, though, lenders are not keen to restructure the company’s debt and see equity infusion from an outside investor as the only feasible option.

The company owes banks about Rs 10,000 crore.

According to two bankers in the know, who spoke on condition of anonymity, Suzlon is currently overdue on payments with some banks and has been classified as a ‘special mention account’ as per the Reserve Bank of India’s guidelines. The rules say that if any account is overdue by 1-90 days, its classified as a special mention account in three different buckets, depending on the extent of delay. If overdue for more than 90 days, an account is classified as a non-performing asset.

According to the two bankers quoted above, lenders are likely to sign an inter-creditor agreement by early next week to start resolving the account. Such a pact is now mandatory under the RBI’s new stressed asset rules and allows for a decision taken by the majority of lenders to prevail.

Emails sent to Suzlon Energy and lead State Bank of India on Wednesday went unanswered.

No Second Restructuring

Bankers say that a second restructuring of the company’s debt is not feasible.

The wind turbine maker went through a round of debt restructuring only in 2013, where a consortium of 19 banks had approved a recast of the debt under the corporate debt restructuring cell. At the time, lenders had agreed to a two-year moratorium on repayments and a reduction on interest rates, among other things.

The company is yet to meet all the terms set under the CDR mechanism, the bankers quoted above said.

Last year, the banking regulator had withdrawn all restructuring schemes, including CDR. However, since Suzlon was already under the CDR process, banks could continue with the restructuring.

At this stage, a second restructuring would mean that the account would be immediately classified as an NPA and draw higher provisioning.

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To ensure the account gets resolved within the 180-day period set under the new circular, lenders are working with the company to find a new investor, said the bankers quoted above.

Currently, banks have received a non-binding offer from Canadian investor Brookfield, the bankers said. The negotiations include a one-time settlement of debt and a sale of majority equity. The bidder has offered lenders time till July 29 to negotiate, after which it will decide on whether to submit a binding offer.

An email sent to Brookfield on Tuesday went unanswered.

In a statement to stock exchanges, in response to an Economic Times article, Suzlon said that the company continues to work on significant debt reduction, as committed.

“Also, as a wholesome approach towards liability management, the Company has been exploring various funding options like raising fresh equity, and the Company has been engaging with its lenders in this regard to arrive at mutually acceptable and viable options,” Suzlon said.

Financial Pressure

In the January-March quarter, Suzlon reported a consolidated net loss of Rs 295 crore, as compared to a Rs 470 crore loss a year ago. For the entire financial year though, net loss rose to Rs 1,537 crore, as compared with a Rs 384 crore loss in FY18. The losses were largely due to high finance costs and a difficult business environment,

According to the investor presentation, the company’s gross term debt is at over Rs 8,000 crore as on March 31. Of this, nearly Rs 4,000 crore of debt is backed by standby letter of credit issued by domestic lenders. Rupee term debt is at over Rs 2,600 crore. Foreign currency convertible bonds worth Rs 1,200 crore also form part of these liabilities.

While announcing the company’s results, the management had told investors that they are committed to bringing down Suzlon’s debt by 30-40 percent through strategic initiatives, in the medium term.

Tulsi Tanti, the promoter of Suzlon and his family own about 19.82 percent stake in the company. Sun Pharmaceuticals Ltd. promoter Dilip Shanghvi cumulatively owns about 18.8 percent stake in Suzlon. Banks and financial institutions control 3.57 percent stake, while Life Insurance Corporation of India owns 1.69 percent.

Lenders led by State Bank of India have already appointed SBI Capital Markets Ltd on a provisional basis to work on the resolution plan. Once the ICA is signed and SBI is appointed as the lead lender, it can fully appoint SBI Caps and start negotiating with Brookfield, the bankers quoted above said.

The Suzlon case is currently classified under special mention account category for the bankers involved, the bankers quoted above said. An account is classified under SMA when it has missed its repayment schedule, but is yet to turn non-performing.

If the sale process with Brookfield does not go through, lenders may either drag the company through the insolvency and bankruptcy process, or sell their loans to interested parties and exit the account, the bankers added.