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Suzlon Drops $360M Rights Issue; REpower’s Tech Transfer In Limbo

28 October, 2008

Indian wind turbine maker Suzlon Energy Ltd has dropped its $360 million (Rs 1,800 crore) rights issue due to poor market conditions, the company has informed the stock exchanges. The company will now look at other fund raising alternatives which could include a private placement and/or monetise its investments in subsidiaries.

Suzlon was raising funds to buy Portuguese conglomerate Martifer’s stake in REpower and for potential buyout of any minority shares that are offered. Early last month, Suzlon announced plans to acquire an additional 22.48% stake held by Martifier in German wind power company REpower for $400 million. The deal would have taken Suzlon’s holding in REpower to 90%.

Suzlon stock touched a 52-week low of Rs 42 on the BSE on Monday.

Now the falling markets have forced the company to suspend negotiations to conclude a domination agreement with REpower.

REpower Tech Transfer On Hold

Suzlon also said its domination agreement with its subsidiary REpower has been put on hold. A domination agreement with REpower would have enabled transfer of technology to Suzlon. Suzlon is facing a lot of technical problems as blades of windmills it has sold have begun to split in some locations.

REpower is in advanced negotiations with a syndicate of banks regarding the financing its growth. The banks have made it a pre-condition for the execution of the financing agreements that the parties refrain from entering into a domination and profit transfer agreement.

After this, Suzlon requested the management board of REpower to enter into negotiations regarding the execution of a domination and profit transfer agreement between REpower and SE Drive Technik GmbH, a member of the Suzlon Group.

Under German law, a domination agreement requires at least 75% control of a company’s votes present at a shareholder meeting. REpower can consider Suzlon a “competitor” since it does not own a majority of the company. It is therefore not obliged to transfer its blueprints to Suzlon; Suzlon would need to buy out the minority shareholders. And REpower is refusing to share the technology at present in order to protect the interests of those minority shareholders.

Suzlons windmills are facing a huge problem in US and recent hurricanes had left some of them badly twisted. US accounts for 60% of Suzlons market, and completion of the deal with REpower would have enabled it to access latter better technology. Earlier this year Suzlon had to recall 1,251 blades and it had to incur a cost of at least $30 million to repair the cracked blades and reinforce the rest.

The share price of Suzlon had taken a beating in the current bear market due to various technical defaults in both US and India. The most recent came when a blade broke off a tower in Illinois, US which led to 39% fall in its share price on Friday. To top that the company declared Rs 1,800 crore rights issue, which the markets have not taken well. Since announcement of its rights issue, the share price of the firm has spiralled down by more than 75%, touching its 52-week low of Rs 42 today.  

A WSJ article said that Suzlon might sell stakes in other units, like Belgian gearbox maker Hansen Transmissions International NV.

Suzlon also informed the exchange that its has closed the deal with IDFC Private Equity. SE Forge, a subsidiary of Suzlon, had agreed to sell a 17% stake to IDFC PE for Rs 400 crore late last month.


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Suzlon Drops $360M Rights Issue; REpower’s Tech Transfer In Limbo

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