Sun Pharma promoters to buy 23% stake in Suzlon for $290M

Billionaire Dilip Shanghvi and his associates, the promoters of India's top drugmaker by market value Sun Pharma, are investing Rs 1,800 crore ($290 million) to buy 23 per cent stake in Suzlon Energy Ltd, the world's fifth largest wind turbine maker, the firm said late on Friday.

Tulsi Tanti family, the current promoters of Suzlon, will hold 24 per cent stake and will retain management control. As of February 5, 2015, promoters held 31 per cent stake in Suzlon.

Talking about the investment, Dilip Shanghvi said: “While we believe Suzlon has the potential to emerge as a global leader in the renewable energy space from India, it will take substantial and sustained effort on part of the management team to achieve a significant operating performance improvement. We have strong faith in the leadership of Tulsibhai to achieve this and will continue as financial investors.”

Shanghvi's brother-in-law Sudhir Valia, who is also part of the investor group, said: “Despite having strong fundamentals, during last couple of years Suzlon’s performance was impacted by macro headwinds and liquidity constraints. We believe that our financial investment through equity infusion and facilitating working capital will enable the company to tap large opportunities in the renewable energy sector.”

Although the deal doesn't cross the trigger point of 25 per cent stake for mandatory open offer, since the acquirers are coming in as co-promoters they have also made an open offer to buy 26 per cent more with Tanti family as persons acting in concert. The open offer has been made at Rs 18 a share which could cost as much as Rs 2,835.5 crore ($457 million) depending on the acceptance ratio. 

Suzlon scrip had last traded at Rs 19.15 a share ahead of the deal announcement. The company's share price has risen around 50 per cent in the last three weeks.

(UPDATE: the share price shot up over 13 per cent on Monday, which could make the open offer redundant)

Tulsi Tanti, chairman – Suzlon Group, said: “All the strategic initiatives are extremely crucial and will pave the way for our growth. These bold steps will strengthen our capital structure permanently, enabling significant deleveraging and liquidity to ramp up volumes rapidly.”

He added that Suzlon is poised to enter FY16 with a strong liquidity position to tap the opportunity available in India as well as key growth markets like USA, China, Brazil, South Africa, Turkey and Mexico.

Amit Agarwal, CFO of Suzlon, commented: “These initiatives will result in sizeable debt reduction, savings on interest expense and will provide the necessary liquidity to boost operations. Our efforts resulted in positive EBIT in this quarter in addition to positive EBITDA for the fourth consecutive quarter. We continue to focus on execution of our order book.”

The deal involves preferential allotment of 1 billion new shares of Suzlon at Rs 18 each. In addition Shanghvi and family will form a 50:50 joint venture with Suzlon for wind farm development business. This JV will develop 450 MW wind farms within a stipulated period of time.

Sun Pharma promoters will also assist in providing incremental project specific non-fund based working capital facility to Suzlon for execution of this project. They would also provide credit enhancement to the lenders of Suzlon for additional project specific working capital facilities. This move will help Suzlon in getting much needed working capital financing support and will be a catalyst for volume ramp up. The above transactions are subject to closing conditions, including corporate and other regulatory approvals.

Inga Capital acted as a transaction advisor while P H Bathiya & Associates are legal advisors to Sun Phrama promoters; Amarchand & Mangaldas & Suresh A Shroff & Co. are legal advisors to Suzlon. The transaction was facilitated by Antique Stock Broking Limited.

This deal comes back to back with a large asset divestment announced last month where Suzlon has signed a binding agreement with US-based private equity firm Centerbridge Partners LP to sell its entire stake in wholly owned German firm Senvion SE (formerly REpower Systems) for up to €1.05 billion ($1.2 billion or Rs 7,560 crore).

This deal includes an upfront cash transaction worth €1 billion (around Rs 7,200 crore) with additional future earn out of up to €50 million (Rs 360 crore). The transaction, subject to regulatory and other customary closing conditions, is expected to be closed before the end of the current financial year.

The sale of Senvion is in line with Suzlon's strategy to reduce the debt and focus on the home market and high growth market like the US and emerging markets like China, Brazil, South Africa, Turkey and Mexico.

For Shanghvi and family, this would expand business interest beyond pharma. Notably, Sudhir Valia has been looking at such investments and in the past came in as a short time partner to Norwegian telco Telenor in its Indian venture Uninor. He is also involved with listed financial services firm Fortune Financial which acquired Antique Stock Broking a couple of years ago.

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