Suzlon Plans First Global Wind Bond Since 2011: India Credit

September 2, 2012 by  
Filed under Green Energy News

Suzlon Energy Ltd. (SUEL) plans the first
international bond offering among wind-turbine makers in more
than a year, testing investor appetite as the industry struggles
with a supply glut and dwindling government support.

India’s biggest maker of the equipment may sell as much as
$500 million of debt in the third quarter, Chief Financial
Officer Kirti Vagadia said Aug. 14. The yield on Suzlon’s 5
percent convertible note due 2016 touched an all-time high of 32
percent Aug. 30, Elara Capital Plc prices show. Similar-maturity
debt of Germany’s Nordex SE (NDX1) yielded 10 percent compared with 13
percent on 2015 bonds of Denmark’s Vestas Wind Systems A/S. (VWS)

Suzlon needed a 45-day extension to avert default when
redeeming $360 million of convertible notes in July. Three weeks
later, the Indian unit of Moody’s Investors Service slashed the
company’s short-term debt rating eight levels to its lowest junk
grade. The company based in Pune, 150 kilometers (97 miles)
southeast of Mumbai, last month posted its second-biggest
quarterly loss since at least 2007 as costs rose and turbine
prices slumped 23 percent from their peak in 2009.

“It’s tough to go for such an investment as a high-yield
investor since you have an industry and cash flows under
stress,” Tobias Bettkober, who helps manage $500 million of
convertible debt in Zurich at Holinger Asset Managment AG
including Suzlon notes maturing in 2016, said in an Aug. 29
interview. “Without the support of an anchor investor, I don’t
think they’d be able to place such an issue easily.”

Nordex, Vestas

Suzlon, in an Aug. 31 e-mail, declined to comment on the
rating downgrade and said “it would be premature” to comment
on its bond-sale plans “due to commercial confidentiality.”

Nordex was the last major turbine maker to issue debt to
international investors when it raised 150 million euros ($189
million) in April last year selling 6.375 percent notes due 2016.
Vestas, the world’s biggest turbine maker, placed a 4.625
percent 600 million-euro five-year bond in March 2010. China’s
Xinjiang Goldwind Science Technology Co. (2208) and Sinovel Wind
Group Co. (601558)
have only sold domestic bonds.

The yield on Nordex’s bond touched a record high of 20
percent on May 7, while Vestas’s notes reached a peak of 23.4
percent on May 21, amid falling margins and competition for
shrinking orders.

Suzlon lost money for three consecutive years and has $2.8
billion of bonds and loans, including $939 million in revolving
facilities, through 2017. The yield on its 2016 notes has
climbed 14.2 percentage points from this year’s low of 17.4
percent on March 14, Elara prices show.

‘Tough Conditions’

“Given the tough conditions the wind industry is currently
undergoing and subdued market conditions, a successful high-
yield issuance may be challenging,” Rosita D’Souza, a
Singapore-based credit analyst at Elara said in an Aug. 28 e-
mail. Suzlon may not generate free cash flows until the end of
the next financial year and “will have continued challenges to
repay debt that comes up,” she said.

Elara on Aug. 15 advised investors against buying Suzlon’s
2014 and 2016 bonds, citing difficulties in obtaining orders and
expiring incentives for wind power.

Annual installations in China, the world’s largest market
for wind-power equipment, may slump for the first time in 2012
and decline annually by at least 4 percent through 2015,
according to Bloomberg New Energy Finance forecasts. In the U.S.,
the second-biggest market, turbine additions may slump 75
percent in 2013 if the federal government fails to extend tax
breaks for wind farms, according to Navigant Consulting Inc.’s
BTM Consult.

‘Easier Said Than Done’

“There is appetite for high-yield bonds as seen in recent
issuances, but with Suzlon’s history and current financial
condition, it will be tough,” Atul Gharde, a Hong Kong-based
credit analyst at SJS Markets Ltd., said in an Aug. 28 e-mail.
“They might have to fall back on the holders of their earlier
bonds and coax them into buying the new ones. But that, again,
is easier said than done.”

To hold Suzlon’s 2016 bonds, investors are demanding yields
more than double that of similar-maturity debt of Vestas and
Nordex, and more than six times that for Indian issuers.

The average yield on dollar debt of Indian issuers was 5.2
percent on Aug. 31 and touched 5.08 percent on Aug. 13, the
least since Aug. 5, 2011, HSBC Holdings Plc indexes show.

Ten-year rupee borrowing costs for companies rated AAA by
Crisil Ltd., the Indian unit of Standard Poor’s, fell one
basis point to 9.44 percent on Aug. 30. Yields have climbed from
9.22 percent on Feb. 1, the lowest level in 2012.

Cash Squeeze

The yield on the benchmark 10-year sovereign bonds has
fallen 33 basis points this year. The yield on the 8.15 percent
note due June 2022 rose five basis points to 8.24 percent on Aug.
31, according to the central bank’s trading system. The rupee
advanced 0.2 percent to 55.5275.

A lack of working capital constrained Suzlon’s ability to
carry out orders, the company said Aug. 13 after reporting an
8.6 billion-rupee ($153 million) loss for the fiscal first
quarter ended June 30. A cash squeeze forced the turbine maker
to seek a 45-day grace period to pay its convertible bonds that
matured in June, which were redeemed on July 27 after Suzlon
borrowed $300 million from banks and sold two Indian wind farms.

The delay prompted ICRA Ltd., Moody’s local unit, to
downgrade Suzlon’s short-term debt rating to “D,” indicating
expected default on maturity. The rating doesn’t include the
company’s bonds and refers to liabilities of one year or less.

‘Structurally Challenged’

Suzlon has $142 million of bonds maturing in October, $90
million in 2014 and $175 million in 2016, according to data
compiled by Bloomberg.

State Bank of India, one of the company’s main lenders, may
help Suzlon repay its October 2012 bonds if the company fails to
raise sufficient funds, ISM Capital LLP said in an Aug. 16 note
to clients. A representative of the government-controlled bank
joined the turbine maker’s board on behalf of a group of lenders,
Suzlon said in an Aug. 13 filing.

Credit-default swaps on State Bank, which some investors
consider a proxy for the sovereign, fell 64 basis points in 2012
to 331 in New York, according to data provider CMA. The
contracts pay the buyer face value in exchange for the
underlying securities or the cash equivalent should a borrower
fail to adhere to debt agreements.

“Suzlon’s business model is structurally challenged,” ISM
Capital analysts Antoine Bourgault and Melanie Thornton wrote.
“We have less confidence in the company’s ability to repay the
2014 and 2016 bonds.”

To contact the reporter on this story:
Natalie Obiko Pearson in Mumbai at

To contact the editor responsible for this story:
Reed Landberg at

Enlarge image
Suzlon Plans First Global Wind Bond Since 2011

Suzlon Plans First Global Wind Bond Since 2011

Suzlon Plans First Global Wind Bond Since 2011

Adeel Halim/Bloomberg

Wind turbines stand at the Suzlon Energy Ltd. wind farm in Satara, India. Suzlon needed a 45-day extension to avert default when redeeming $360 million of convertible notes in July.

Wind turbines stand at the Suzlon Energy Ltd. wind farm in Satara, India. Suzlon needed a 45-day extension to avert default when redeeming $360 million of convertible notes in July. Photographer: Adeel Halim/Bloomberg

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