State Bank of India (SBI) has approved a restructuring plan proposed by Suzlon Energy Ltd as the first step towards saving the stressed wind power firm, according to two bankers familiar with the matter.
Under the plan, Suzlon’s debt of ₹12,700 crore will be converted into sustainable and unsustainable debt and will be repaid over 20 years. Sustainable debt, which is 32-35% of the total, will be repaid over the first 10 years, after which unsustainable debt, including non-convertible debentures and compulsorily convertible preference shares (CCPs), will be repaid. This would mean that lenders will have to take a haircut of 65% on the debt.
Sustainable debt is that where the principal value of all debts owed to institutional lenders can be repaid if the future cash flows remain at their current level.
Lenders led by SBI will pick up 10% stake in Suzlon immediately on issue of shares and 49% stake in its subsidiary, Suzlon Global Services Ltd (SGSL), after conversion of CCPs in 20 years. SGSL, a 100% subsidiary of Suzlon, is involved in designing and manufacturing of equipment for generating wind energy.
The promoter has promised to bring in equity of ₹275 crore and is in talks with other lenders for working capital loans, said the first person mentioned earlier. The promoter, Tulsi Tanti, is also supposed to sell off some of the company’s assets, which includes the headquarters in Pune.
“The promoter has assured bankers that there will be an orderly sale and that everybody will be allowed to exit over the next three years,” the person said.
SBI’s approval is the first step in the resolution process. The resolution plan is being circulated among other lenders in the consortium for their approval as under the inter-creditor agreement (ICA), the plan must be approved by at least 66% of the lenders in the consortium.
Suzlon had entered into an ICA with lenders for restructuring on 1 July 2019. However, in its notes to account at the end of December 2019, the company said that the lenders are in the process of amending the agreement for extending the period under the ICA till 30 April 2020. The company is expected to implement the proposed restructuring plan by 31 March 2020, but the bankers mentioned earlier said that it is likely to be extended.
Suzlon has been working with lenders to restructure debt after talks with potential buyers, including Vestas Wind Systems and Brookfield Asset Management, failed to take off. The company had said that it has been under financial stress because of the unsustainably low prices offered by the new chief minister of Andhra Pradesh instead of the prices in the power purchase agreements. Delays in project execution because of a dearth of infrastructure and available sites also led to the stress, it said.
At the end of December 2019, Suzlon reported a net loss of ₹743 crore compared to a net loss of ₹40.07 crore in the year ago period. The group has continued to incur losses because of lower volumes and higher finance costs. The company had said in its third quarter earnings that one of the lenders has recalled outstanding borrowings of ₹597 crores from the company.
