Suzlon on Thursday defnded its sales of German arm Senvion to US-based VC fund Centrebridge Partners saying it is at a “minor loss”, but will reduce the firm’s interest burden, free up liquidity and help it return to profitability next fiscal.
The company on Thursday reported that it has agreed to sell its German subsidiary Senvion SE to US-based investment firm Centerbridge Partners for 1 billion euro (about Rs7,200 crore) in an all-cash deal to trim debt.
“The sales proceeds will be utilised for debt repayment, thereby reducing interest costs and augment the business growth,” Suzlon Group chairman Tulsi Tanti told reporters on a conference call from Davos, where he is attending the World Economic Forum summit.
Earlier in the day, the Pune-based wind turbine maker, which has been sitting over Rs16,500 crore of debt, said it has entered into a binding agreement with American distressed assets fund Centerbridge Capital Partners to sell Senvion for $1.2 billion (about Rs7,200 crore) in an all-cash deal to pare its debt.
Tanti said it is a “wise” decision to exit the business acquired in 2007 at Euro 1.4 billion and constitutes as much 65 per cent of the business. He asserted that he is “happy” at the valuation which is “reasonable” given the current market conditions and at par with peers.
Tanti also sought to clarify on the view that the company, which is under corporate debt restructuring process, has sold the asset at a discount. Pointing to 20 per cent deprecation of the rupee against the euro over the past seven years, he said: “net-net it is a very minor loss, there is no loss to the company... There is some misunderstanding that there is a loss while selling this company, it is not true.”
He said the rupee was trading at 60 to the euro at the time of the deal, whereas now a euro fetches you Rs72. Some analysts say that by selling Senvion, Suzlon loses one of the biggest revenue and profit centres for the group, which posted a loss of Rs924 crore in FY14 and Rs528 crore in the September quarter of this fiscal.Tanti said both Suzlon and Senvion are profitableventures. It is estimated that Senvion contributes to almost 65 per cent of Suzlon’s business now.
The company scrip zoomed by over 7 per cent after the deal was announced this morning, but later saw a sharp correction. It close 7.45 per cent down at Rs15.91 on the BSE, as against 0.5 per cent gain in the benchmark Sensex which crossed the 29,000 mount for the first time.
“Sale of Senvion is not affecting our profitability. The biggest advantage is that by this deal, our interest cost is reduced and overall debt is reduced and that will help us focus on growth more,” he said, conceding that total balance sheet will get compressed after the transaction. Tanti said Suzlon will save Rs600 crore in interest next fiscal, as against Rs1,600 crore now, while debt repayment will also free up additional sources of finance.
Suzlon, which restructured its debt in January 2012, will pay off Rs6,000 crore from the proceeds to its 19 lenders led by State Bank of India, Tanti said, adding the remaining Rs1,200 crore will be deployed for operational purposes.
Suzlon is also hopeful of a reduction in up to Rs3,000 crore of debt from the option of converting FCCBs into equity for investors, he said, adding that there is a further component of Rs4,000 crore in low-interest dollar debt for which the company does not have to make any principal repayments till FY19-end.
Post deal, Suzlon will be left with only Rs3,500 crore in debt which will basically be working capital, he said. Tanti said Suzlon has 2,500 customers with over 15,000 mw of operational capacity, from where it will continue accruing service revenues. He said due to financial constraints faced earlier, it is not able to meet expectations of these customers till now, but will now be able to cater to the full demand.
“Next fiscal, Suzlon will be in profits because interest is reducing and volume will go up. Because of that, we will be profitable,” Tanti said. Tanti kept referring to the deal value at euro 1.1billion, including a future earning of euro 50 million. However, this euro 50 million is linked to performance.
He said talks on both listing as well as an outright sale were continuing in parallel, but the latter option fructified first. The deal does not restrict either Suzlon or Senvion from entering any market globally, he said, adding that Suzlon will now be focusing on the traditional markets of India and the US, and also emerging ones like China, Brazil, South Africa, Turkey and Mexico.
“They are the countries with high need of energy, where the cost of energy is very high and where energy deficit is big,” he said, stressing that the opportunity presented in the domestic market itself is very big and the company is targeting to increase its domestic market share to 40 per cent next fiscal. The Government is looking at a five-fold rise in wind power capacity, he said, referring to the opportunity.