India's largest wind turbine manufacturer Suzlon Energy Ltd has restarted the process to raise private equity funding even as it looks to refinance its acquisition debt. Private equity fund WL Ross & Co. and BC Partners are in talks to invest around $400-500 million in Suzlon Energy, sources familiar with the development told VCCircle.
The Ahmedabad-based company could look at diluting up to 15% stake, if the deal goes through. The company has currently undertaken a $2.8-billion refinancing which it plans to complete by the end of January, Suzlon chairman Tulsi Tanti had said last month. The deal, part of the company's turnaround move, would help bring in fresh equity into Suzlon.
When contacted, a spokesperson at Suzlon said, in an e-mail response, "we decline to comment on unsubstantiated rumours." In an email response, W L Ross India managing director and CEO Ranjit Nabha said, "as policy we do not comment on market rumours and speculations."
Though the expected deal valuations could not be determined, based on Suzlon's prevailing market capitalisation, the deal could fetch around a 13-15% stake for the PE investors. In late 2008, Suzlon had initiated talks with PEs to raise funds to buy Portugal-based
Martifer's stake in its German unit REpower. The company had, at that time, zeroed in on Carlyle and Texas Pacific Group (TPG) to raise $300 million for a 10-15% stake, but that deal was never closed. Suzlon completed the purchase of Martifier's stake in REpower in June last year. The present round of discussions are part of the same process but WL Ross & Co and BC Partners are now the main contenders. Caryle and TPG are still waiting for the outcome on the fringes.
WL Ross & Co, which is run by US turnaround investor Wilbur Ross, has a strategy to invest in troubled companies. The deal presents an interesting turnaround opportunity for Wilbur Ross as Suzlon has undertaken a broad-based debt consolidation and refinancing scheme.
Suzlon reported net loss of more than Rs 800 crore for the first two quarters of this fiscal year, which were mainly due to the weak demand. Also the company had to pay customer claims due to blade failures in its wind turbines, which also led to cancellations of orders. But by late 2009, Suzlon completed its programme to upgrade its 2.1-megawatt turbines, where it reportedly spent $100 million. Also on the backdrop of revival in world economy, Suzlon, along with its subsidiaries, has won orders of more than 1,200 MW since November 2009. Its subsidiary REpower Systems AG recently bagged its largest ever onshore order for supplying equipment worth 954 MW.
Also the deal, if it goes through, will not be first for WL Ross in Asian wind energy sector. The investment firm recently picked up $100 million in shares in China’s Longyuan Power Group Corp, Asia’s largest wind power generator. Its investments in India include textile firm OCM India, which it bought from ARCIL, and low cost airline SpiceJet.
BC Partners, a buyout shop with offices in Europe and America, advises funds of more than $14 billion. BC Partners, which does not have a direct presence in India, has been in talks with Suzlon for a while. Its investments include Office Depot, world's leading provider of fixed satellite services Intelesat, among others. The deal is also reflective of the emergence of new themes in Indian private equity. As qualified institutional placements (QIPs) edge out large private equity deals, restructuring and turnaround may likely be the new fronts for buyout shops operating in India.
Last month, Suzlon completed the first phase of its bigger debt recast programme by paying back the outstanding loans worth $780 million for its overseas acquisition. It has used part of the proceeds from sale of stake in Hansen last month ($370 million) and has taken a fresh US dollar denominated refinance loan of $465 million from SBI. Besides stake sale in subsidiaries, Suzlon's promoter group has also cut its stake in the firm from 65.83% in March '09 to 53.08% by September 2009. These funds were infused into the company. Suzlon still has estimated debt of $2.4 billion to $2.8 billion (Rs 11,000-12,000 crore).