Indian wind turbine maker Suzlon Energy is negotiating with C. Sivasankaran, the NRI investor to raise nearly $80.5 million to increase its stake in Germany's REpower, the Economic Times said.
Suzlon may pledge some of its holding in its overseas engineering subsidiary, Holco, to C. Sivasankaran to raise the cash, also said the daily, adding this could not be confirmed.
The company is looking at various options including internal accruals and equity to raise funds to increase its stake in REpower and also for its own business operations.
Suzlon, which owns 77.7 percent in REpower, said earlier this month it would use cash and debt for a 205 million euro payment to buy the remaining 13.3 percent of the German firm from Portugal's Martifer.
Options Available To Raise Finances
“Suzlon needs this money to pay the second tranche of Martifer stake in REpower, which is around 30 million euros. I think eventually they will have to raise money because they have some cash problems in the company and they have to raise these 30 million euros by April end”, said an analyst with a Mumbai based broking firm.
There are other options available with the wind turbine maker to arrange finances for increasing its stake in RE Power, say the analysts. “It can look at diluting some of its stake in its subsidiary Hansen Transmissions or raise private equity money,the investor could be Sivasankaran. The third option would be to raise debt but they already have debt of around Rs14,500 crores as on December 31, 2008”, added the analyst.
The Malaysia based investor has been investing in India for quite some time now. It picked up a 14.98% stake in Sahara One for $26.6 million in 2006. Interestingly, Sivasankaran has a related investment in Finland-based wind turbine maker WinWinD Oy. Considering this, the NRI investor who has made fortunes buying and selling Indian companies, Suzlon could be of interest to it. He had also promoted Aircel, an Indian cellular operator, before selling it to Malaysian telecom Maxis for over $1 billion
With a leveraged balance sheet and an increasingly approaching timeline to increase the stake in REpower, Suzlon also has another serious problem to grapple with. The latest issues concern Suzlon’s blades for a project in China's Shandong province. Early last year, Suzlon won a contract with Germany's REpower Systems AG to produce blades for 75 turbines for the China project and an option on 75 more. But REpower rejected Suzlon's prototype for the initial blades for not meeting REpower's quality standards and obtained them from other suppliers, reports WSJ.
Such developments have kept the analyst wary of the company who maintain an underperform rating on the stock. “There are certain risks attached to the stock as far as quality is concerned and the blade crack issue is concerned. Also there is no clarity on the financial leverage aspect. And even if Sivasankaran gives money for this second tranche, from where will they get the money for the third tranche which is almost Rs 1200 crore”, added the analyst.