This is how Suzlon plans to revive through debt recast

Saikat Das
moneycontrol.com

The prospect of revival for the debt-ridden Suzlon Energy brightened. Finally, banks admitted the company's 11,000 crore loans in the corporate debt restructuring (CDR) cell. This means, lenders will now chalk out a final bailout plan in consultation with the management and thereby try normalise its delayed repayment schedules.

Restructuring is the process when a borrower fails to repay a loan due to gloom in business and asks for relaxation of original terms and conditions of the loan from banks. CDR cell is a platform where lenders jointly design restructuring of loans.

In its flash report wherein the initial details of CDR process are charted out, Suzlon mentioned a number of avenues assuring future cash flows. While the company management sees a "desired contribution" of Rs 250 crore from its promoter - Tulsi Tanti, it is expecting an inflow of USD 206 million (or about Rs 1,100 crore) from Edison, a US-based customer of the company.

The company plans to reduce fixed expenditure by about Rs 300 crore in 2013-14. At the same time, it proposes to mop up USD 500 million (or nearly Rs 2,800 crore) by the way of stake sale/disinvestment by March, 2015.

Suzlon is also keen in selling some of its assets held in different group entities. Those include: China-based Suzlon Tianjin (USD 50 mn or Rs 280 cr by March, 2014), SE Forge Ltd, SE Electricals (Rs 100 cr by December, 2013), and sale of miscellaneous offices valued at Rs 60 cr by December, 2013.

It is also proposed that banks would bring Rs 500 crore fund based and Rs 1,500 crore non-fund based as fresh credit to the company. However, all proposals may undergo modifications after the final viability report is prepared by lenders.

A total number of nine CDR lenders (members) and four non-CDR lenders lent to the fifth largest wind turbine maker in different forms including: rupee term loans, fund based working capital loans, non-fund based working capital loans (highest at Rs 3,670 cr) and standby letter of credit, a kind an assurance issued by banks that a company has the financial resources to meet its financial obligation as per contract.

Some of the large financial institutions include SBI, IDBI Bank, Bank of Baroda, ICICI Bank, Axis Bank, Life Insurance Corporation and Punjab National Bank. Other non-CDR lenders are PFC, Yes Bank and Saraswat Bank.

According to the flash report, banks have sacrificed around Rs 1,000 crore of the present value of the loan. RBI norms suggest, promoter has to bring in 25% (or Rs 250 cr) of the sacrifice amount. However, the promoter has to pay 50% of Rs 250 crore upfront at implementation of the final recast package.

Also read: Lenders admit Suzlon to CDR process, may offer fresh credit

                 SBI and IDBI Bank, 2 largest lenders in Suzlon debt recast

Justification behind CDR admission:

The rationale ranges across different issues be it defaults on foreign currency convertible bonds (FCCBs) redemptions or its outstanding loan amount stuck with Edison Mission. Delays in cash flows from German-based REpower also added to the woes. CDR cell observed that the company has suffered due to steep rise in interest rates and prolonged downturn in global wind energy and weakening in European economic condition.

"The company will be able to deliver only Rs 1,000 MW as against the original target of 2000 MW in FY13, primarily due to these reasons," concluded the report corroborating the need for CDR mechanism for Suzlon.

saikat.das@network18online.com