* Suzlon sought to extend maturity of over $200 mln bonds by
* Two tranches of overseas convertible bonds due on Thursday
* Shares fall as much as 5 percent after bondholders reject
By Tony Munroe and Sumeet Chatterjee
MUMBAI, Oct 11 India's Suzlon Energy Ltd
was set to default on redemption of more than $200
million in overseas convertible bonds due on Thursday after
bondholders rejected a four-month extension, sending its shares
down as much as 5 percent.
The world's fifth-largest maker of wind turbines was one of
numerous Indian companies that rushed to tap the offshore
convertible bonds market before the global financial crisis,
often to finance overseas acquisitions.
Since then, many of the nearly two dozen Indian companies
with nearly $6 billion in foreign currency convertible bonds
maturing this year have struggled to meet their debt obligations
due to a sharp plunge in share value, feeble earnings growth and
a weaker rupee.
A total of $1.3 billion of convertible bonds are expected to
come up for redemption in the October-December quarter,
brokerage Kotak Securities said in a report last month.
"I regret to announce today that the bondholders' meetings
did not achieve the consensus we were hoping for and the
four-month extension sought by us has not been granted," Kirti
Vagadia, chief financial officer of Suzlon, said in a statement.
"We expect that an acceptable solution for all stakeholders
will be arrived at the earliest possible."
Suzlon would not be the first Indian issuer to default on
its overseas convertible bonds. In 2009, generic pharmaceuticals
maker Wockhardt defaulted on $110 million worth,
although it has managed to restructure its debt and its stock
has soared this year.
"It's not good," Tobias Bettkober, a Zurich-based manager of
Indian convertible bonds with Holinger Asset Management, said of
"It's showing lack of execution quality. It's problematic of
course for trust and sentiment for investors in India."
Suzlon has been under pressure in recent years from a
slowdown in global turbine sales and its debt, and has lost
money for the past three years. While it has an order book of
$7.2 billion, tight working capital squeezed its operations in
the June quarter.
At the group level, Suzlon had net debt of 130.17 billion
rupees ($2.45 billion) at the end of June, rising from 105.44
billion rupees in the year ago period, while its cash totalled
13.72 billion rupees at end-June.
Suzlon has two other dollar bonds worth a combined $265
million maturing in 2014 and 2016, Thomson Reuters data show.
Suzlon said last month it would seek approval from
bondholders on Oct. 10 to extend the maturity of two tranches of
convertible bonds due on Oct. 11 by four months to Feb. 11. That
would have given it time to sell more assets and attempt to
Suzlon has said it aims to sell between $100 million and
$200 million in assets this fiscal year; it has sold $40 million
worth, with another $60 million worth in the pipeline.
It recently filed a lawsuit in the United States to collect
$208 million owed to it in early February 2013 by a unit of
Edison International, which has argued it does not need
to pay due to what it says are defects in equipment bought from
Suzlon. Suzlon has said it "categorically" rejects that.
The larger of Suzlon's two bond issues due on Thursday has a
conversion price of 97.26 rupees per share, while the other is
convertible to Suzlon shares at 76.68 rupees. Shares in Suzlon
dropped as much as 5.1 percent on Thursday to 15.70 rupees.
The stock has plunged about 83 percent in the last three
years, wiping off $2.5 billion from its market value.
Fitch Ratings predicted in a report in February that about
half of the 55 Indian companies with maturing foreign currency
convertible bonds in 2012 were at risk of some type of
restructuring or default.
The combination of higher domestic borrowing costs and risk
aversion among global banks has made it tougher for the smaller
and mid-sized Indian firms to raise funds to pay bondholders.
On Thursday, State Bank of India, which has about
$659 million of exposure to Suzlon, said banks would look at
ways for the company to restructure its debt, which could
involve Suzlon's Germany-based REpower subsidiary.
Santosh Nayar, deputy managing director at SBI, said
Suzlon's failure to win bondholder approval for the extension
was "highly unexpected".
In July, Suzlon redeemed $360 million of overseas
convertible bonds after bondholders agreed to a 45-day deadline
extension, allowing it to raise bank loans for the repayment.
Indian banks, especially state lenders, tend to be willing
to help major corporate clients through tough times, as has been
seen in the drawn-out case of embattled Kingfisher Airlines
, and liquidations are extremely rare.
"It would be actually a helpful reference if you for once
had an ordinary restructuring or wind-down of a company to the
benefit of the bondholders," said Holinger's Bettkober.
"That dodginess that you have around conversion to equities,
around restructuring, unwinding companies -- that dodginess is
the prime cause of mistrust in India. And that's expensive in
terms risk premium that is then demanded."