Debt-laden Suzlon Energy, which last month got formal approval from banks to restructure its loans, says it can raise about USD 0.5 billion from selling non-critical assets. However, Kirti Vagadia, its CFO, maintained that there is no plan to sell its German unit REpower, which is among the fastest growing in the wind energy industry.
The non-critical assets sale may pan out over next 2-3 years, he told CNBC-TV18 on Monday.
A consortium of 19 banks approved the CDR package of Rs 9,500 crore (USD 1.8 billion), the wind turbine maker said in a notice to stock exchanges on Jan 24.
The package includes a two year moratorium on principal and term-debt interest payments; a three percent reduction in interest rates and six months moratorium on working capital interest.
As a part of the package, Rs 1,500 crore (two year's interest payment during moratorium) will be converted into equity or equity linked instrument over the next two years to bring stronger financial stability and a 10 year door-to-door back-ended repayment plan.
There will also be an enhancement of working capital facilities by about Rs 1,800 crore, which will allow Suzlon to accelerate the execution of its strong orderbook, it said.
In addition, the group's promoters need to bring in additional equity of Rs 250 crore , of which Rs 62 crore has been already infused.
Currently promoter stake is at around 50 percent, Vagadia said.
The Pune-based company continues to see good order flow. Last week it won two major orders -- to supply 66 wind turbines to the Cookhouse Wind Energy project in South Africa and REpower's largest ever order to supply 175 turbines to a project in Quebec, Canada.
Suzlon shares were down 1.4 percent at Rs 24.80 on NSE in morning trade on Monday. The stock has gained 39 percent since it announced banks approval for the CDR package on Jan 24.
Below is an edited transcript of Kirti Vagadia's interview on CNBC-TV18
Q: Can you give us the details of your corporate debt restructuring (CDR) proposal?
A: Yes. CDR in India is a nice scheme available for a viable company and is a joint effort by promoters and lenders to come out of temporary mismatch of cash flow. In Suzlon we do have a temporary conflict between business and debt payment which is a classic conflict for any company when the cash flows are lower. Whether you allot to bank liabilities or you allot to business, this is a classic conflict we were passing through and in consultation with our senior secure lenders we have decided to go for CDR.
We have already announced the broad contours of CDR scheme but just to recap, we have a 10-year door-to-door maturity on repayment of our term loan, including two years moratorium on repayment of installment and interest both so that is one part.
Secondly, we are getting an additional working capital of USD 350 million.
Thirdly, our interest rates stand reduced by more than 300 basis point (bps) which is going to reduce our cost.
Fourthly, we are getting interest converted into loan and loan getting converted into equity so the interest for two years is getting converted into equity.
Q: Post this conversion, how much will institutions hold in Suzlon?
A: It depends on the price at which it is converted. So, right now it is difficult to calculate the percentage but it is somewhere between USD 200 million worth equity.
Q: Once the promoter bring in the amount of money that they require, where will their stake stand at the end of the two year restructuring?
A: You are asking the same result, but current promoter stake is about 50 percent and under this scheme promoters are also bringing 250 crore of the equities and above that promoters have already brought in 145 crore, which is not yet converted into equity so promoters equity will be converted to about 400 crore.
Q: There were reports stating that there was pressure from lenders to sell REpower as part of this CDR proposal in ToTo, is that on the cards for Suzlon to sell REpower even full or part?
A: No, there is some misunderstanding on that part. As you know that every CDR proposal will require company to monetise its non-critical asset and try to bring certain equity values so in our case within certain stipulated period which is more than two years, we need to monetise certain non-critical assets and bring in certain amount of equity so by combination of non-critical asset plus equity we need to bring in certain amount, now looking at that amount people assume that it will result into sell of REpower which is not the case.
Q: How much money you can raise by selling non-core assets over the next 12-18 months?
A: If we are successful in all our efforts, amount is half a billion dollars, we will be able to do that in next 2-3 years.
Q: Which non-core assets will these be though?
A: We have identified many component manufacturing facilities, some of our manufacturing facilities, some of our offices and have already identified those things.
Q: Is there any structure that you are contemplating like a merger with REpower to be able to access the cash on its books?
A: On that area too there are some misconceptions. REpower is performing best in the industry and growing at a very faster pace. We have grown REpower by 5x in revenue during the time we acquired the company and the profitability has grown by 10x. So we are taking a conscious call to invest whatever cash is generated from business for funding the growth of the company.
Q: Are you saying it is not an option at all for Suzlon to be using any of REpower’s cash inorder to pay off debt?
A: No, it depends on the need. If there is no business growth, company can take a call as a 100 percent owner as to what we want to do with that cash. But if there is business growth requirement, it makes sense for us to utilise that money for growth.
Q: You have also been announcing some significant order wins, but they seem largely in the international market, not much in the domestic market, which remains quite sluggish?
A: We have a policy that we give our detailed breakup as well as order backlog number on a quarterly-basis with our quarterly earning announcement and for this December quarter earning announcement, is expected on 14th of this month. So, you will get detailed breakup on 14th of this month, last week we announced about 500 megawatt (MW) order which includes 350 MW very large order, one of the largest on on-shore segment in Canada. Secondly, we have 138 MW order in South Africa which is the first biggest project in South Africa. The third order is in India. We have about 75 MW, two orders in India.
Q: What is the timeline for the promoters when 125 crore has already been put? By when does the next tranche of 125 crore come into the company?
A: As per CDR package, promoters are required to bring in about 250 crore of which 125 crore needs to be brought in by March this year and balance 125 crore by, next 12 months. As far as promoters are concerned, they already brought in 62 crore and have given a plan to the company that balance will be brought in before March-end, so that is the status.
But promoters have been very supportive to the company in difficult period. They have injected more than 1200 crore by the way of rights issue, couple of years back. Recently, they injected about 145 crore over and above what I'm talking about 250 crore. So, the promoters have been very supportive bringing in their capital as and when required by the company.