Hours after debt-laden wind turbine maker Suzlon Energy announced a mega 1 billion euro sale of Senvion, its largest subsidiary, its chairman Tulsi Tanti defended the move, claiming the move would cut the company’s debt, interest cost and boost operations going forward.
In an exclusive interview with CNBC-TV18, Tanti said the company would use Rs 6,000 crore of the Rs 7,200 crore proceeds to repay debt towards Indian banks and said the remaining Rs 1,200 crore would be plowed into the company as equity.
Tanti further said that the company had offered holders of its foreign currency convertible bonds an option to convert about Rs 3,000 crore of debt into equity at a price of about Rs 16 per share.
“In all, this would bring down our debt from Rs 16,500 crore to Rs 7,500 crore,” he said, adding that another Rs 4,000 crore worth of its debt was in the form of bullet bonds to be repaid in 2019 (non-redeemable with face value payable at maturity). “As a result, we now have only Rs 3,500 crore of working capital debt.”
As a result of the Senvion transaction, Suzlon’s overall interest cost would be cut in half, from Rs 1,600 crore to Rs 800 crore.
Tanti also looked to assuage the market’s concerns that hiving off Suzlon would leave the residual company without any major operations and said infusion of additional equity, along with exposure to its “high growth” home and emerging markets would help the company turn profitable in the next financial year.
Senvion accounted for about half of Suzlon’s roughly Rs 20,000 crore revenue last year but Tanti said that following the sale, the residual business would clock faster volumes.
Suzlon shares were down over 4 percent in afternoon Mumbai trading following the deal’s announcement.
Below is the transcript of Tulsi Tanti's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Sonia: Can you tell us why did you agree to sell this bigger and more profitable unit for one billion euro at a discount to your original acquisition price? Was it because you were compelled by the lenders to do so or was there any other reason for this price to be arrived at?
A: It is a good strategic move. Strengthening our balance sheet was the highest priority. Also, we have an enormous growth opportunity. We are growing in our home market and in all emerging economy markets and because of the constraint of the liquidity we could continue like that. So it is a very good and smart strategic move for us.
In this whole process there was no pressure and no requirement from the lenders because we have already done corporate debt restructuring (CDR). So it is [a question of] opportunity versus sustainability.
Sonia: Can you tell us what will be left behind with Suzlon now because that is the fear that there is quite a bit of revenues and profits that you will lose with Senvion now out of the business? Can you tell us what will be left with the entity?
A: First of all, we are not selling any of the business of Suzlon. Being an independent company, it was our subsidiary that operated in the European and some markets.
Suzlon’s business will remain as it is. We have technology centres in Europe we have manufacturing bases in India and China and we have nearly 14,000 MW running installed capacity in nearly 20 countries. So all this will continue.
Latha: What will your revenues be post the Senvion sell? What were Suzlon’s revenues were before sale of Senvion?
A: The revenue was 50-50 [between Senvion and the remaining part of the business]. Last two years, our volumes were low because of non-availability of funds and we are in the CDR process. Now we have liquidity and going forward, we will have better volumes and revenues.
Secondly, Suzlon is [now] operating in a more profitable market compared to Europe. So we have good potential. In 2009, we were running at 3,000 megawatt levels, we will now grow very fast grow because we have great capacity of production and project capability. We can leverage. The bottleneck was only a liquidity constraint.
Latha: Full year revenues of the consolidated entity were Rs 20,000 crore just before the sale of Senvion.
A: Of that, 50 percent was Senvion and 50 percent was [rest of] Suzlon.
Latha: Now that that has gone away, your consolidated revenues will fall to how much?
A: Last year it was 50-50. But in next financial year, we will ramp up. Our volumes were low. Now they will increase.
Latha: By how much?
A: That I cannot forecast.
Latha: What about your losses, at the moment you are running losses of about Rs 2,500 crore, what will your loss be next year?
A: Next financial year, there will be no loss. That is why we are doing this transaction.
Latha: You will return to a profit? Are you saying all your losses will be wiped out?
A: Next financial year we are 100 percent making a profit because there is a reduction of 50 percent of interest cost and at the same time our volumes will increase because of availability of liquidity. It will make us a more profitable company. We will make profit next year.
Sonia: Can you tell us exactly how much interest will you be saving per annum from now on?
A: Currently our interest is Rs 1,600 crore on a full year basis. It will reduce by half, at Rs 800 crore. Out of Rs 7,200 crore, we will pay Rs 6,000 crore to Indian banks while Rs 1,200 crore will go towards growing our operations. At the same time, for Rs 3,000 crore worth of foreign currency convertible bond (FCCB) holders, we have provided an opportunity to convert to equity. This way, Rs 16,500 crore debt will come down to Rs 7,500 crore and the interest cost will go down 50 percent.
Latha: What is the conversion price for FCCB holders?
A: I don’t remember exactly but it is somewhere around Rs 16.
Sonia: Now that the Senvion sale is complete, will you be looking for any stake sell in the listed Suzlon entity at any point in time to retire further debt?
A: There is no such plan because we have sold the largest subsidiary and now we have a sufficient position in the balance sheet. At the same time, we have liquidity. Now our priority is to focus on all our subsidiaries where potentiality of growth is high. We will continue to increase volumes in those markets. We don’t have to sell any asset [anymore].
Latha: Have your lenders agreed to this deal?
A: Lenders are very much happy because they are getting Rs 6,000 crore from the proceeds and it will substantially reduce our debt. FCCB holders will be also comfortable as they will get the opportunity to convert into stock and company will be comfortable because now we have Rs 1,200 crore liquidity. On top of that, banks are giving us more working capital facilities. As a result, we will able to get higher growth business in domestic and international markets.
Latha: We had bankers telling us earlier in the day that they were unsure that Suzlon will be able to sustain and pay up its debt after Senvion goes out. Bankers told us that they were not sure that you would be able to sustain the debt you will have given that your revenues will be much lower.
A: That is not true because you have to understand the financial numbers: Rs 16,500 crore minus Rs 6,000 crore minus Rs 3,000 crore FCCB.
The balance is Rs 7,500 crore. Out of that Rs 4,000 crore is a covered bond, which I have to pay in FY2019, there is no principal payment required for the next three-four years and the balance remaining is Rs 3,500 crore which is working capital debt.
Latha: What will be the annual interest outgo after the Senvion sale?
A: It is nearly 50-percent out of the current. It's a Rs 800 crore interest outgo which includes nearly 100-150 if the non-fund facility matures which is bank guarantee and the charges which is included in Rs 800 crore.
Sonia: You told us about the liquidity that you have. How much funds will you need now to ramp up your domestic business now that Senvion is out?
A: If it is available, Rs 1,200 crore is good enough to grab the domestic 40 percent market and growth in the international market. Because of the current debt situation bank is not in position to provide you the more non-und facilities. By paying this Rs 6,000 crore to all my lenders, they will be very comfortable to give me additional non-fund facilities which will help me to ramp up my volume more fast. We do not require the cash, we require the more non-funds.
Latha: Have they committed to giving you non-fund facilities?
A: Yes, if we are selling this company, during that meeting discussion they have agreed we will provide you additional working capital non-fund for the next year business plan. So they are committed.
Latha: So what is your order book now, ex-Senvion?
A: I am sitting in Davos, so it is very difficult to tell you but nearly Rs 1,500 crore so if roughly translated is USD 1.5 billion dollar order book is there.
Sonia: When do you expect to get the financing and the regulatory approval from the lenders, the final approval?
A: So, we have to do also our shareholder approval, lenders approvals and other regulatory approvals, which we required nearly 45-60 days and the buyer has required the antitrust approvals and other compliance point of view and the general regulations they required 45 days. We are expecting by end, the second-third week of March, we will receive the money.
Latha: You had said in your press release that you will continue to receive some payments from Senvion and you will also have to make some payments. Can you clarify those?
A: No, I don't require to pay anything to the Senvion, there is some communication gap. We will receive all the cash of USD 1 billion. On top of that I will get the 15 million euros as earn out based on the certain performance and top of that I am getting the offshore technology licence.
Latha: That is what I meant. You said for Senvion to give license to Suzlon for offshore technology and Suzlon to give license to Senvion for a 111 to 2.1 megawatt -- so how much money will you have to give and how much money will they give you?
A: First of all, there is no money transaction I have to give, no money they will give. As a part of this deal, I am giving the technology license for two megawatts S111 to Senvion for the specific US markets only. The same thing offshore technology license, Senvion is giving to Suzlon for high demand of the Indian market. For that we do not require to pay anything and they will not pay anything to us. So it's a quite valuable licence for Suzlon.
Sonia: You told us about the order book that currently stands at about 1,500 megawatts. Can you give us an indication of what exactly your revenues for the next year will be ex-Senvion for the listed entity now?
A: I cannot give the forecast.
Sonia: Can you give us any indication of what the growth will look like, how the business environment is for the renewable energy sector?
A: The domestic market is growing from the current year to next year almost 40 percent -50 percent growth will come and we are targeting 40 percent market share for the domestic market.
The particular geographies which we are targeting are in US and all emerging economy market it is in the 20 percent growth outside India. We will increase our business on those markets but our high priority will remain over the next financial year India first and then we can expand more business outside India in our existing geographies.
Latha: So can you at least give us what is the current India revenues at least for FY15?
A: FY15 I don't have exact numbers with me because I am calling from my mobile, it is very difficult to say but investor presentations informations are available.
Sonia: I didn't get this number. Post the FCCB conversions in April 2016, if I am not wrong, what will the debt situation look like?
A: Today debt situation is Rs 16,500 crore first of all minus Rs 6,000 we are paying the Indian banks and Rs 3,000 will be the conversion of FCCB into equity. So the net effect debt will remain Rs 7,500 crore. Out of Rs 7,500, Rs 4,000 crore is the dollar debt covered bond which is a bullet payment in FY2019 and Rs 3,500 crore balance will be the working capital debt. So we are very comfortable on the capital structure. It will give the great opportunity for us to focus on our growth strategy and that is the key action we have take today so we are happy with this.