* Rupee debt to be restructured; 2-yr moratorium on
* Net debt of 130 bln rupees not impacted by deal
* Shares in Suzlon end up 10.7 pct
(Adds fund manager comments, background on CDR mechanism)
By Tony Munroe and Swati Pandey
MUMBAI, Nov 27 Lenders to Indian wind turbine
maker Suzlon Energy Ltd, which last month defaulted on
a $200 million convertible bond redemption, have agreed to
restructure about 110 billion rupees ($1.97 billion) of its
debt, sources said.
The deal gives the world's No. 5 wind turbine maker, which
has been squeezed by a combination of debt, tight working
capital and falling global demand for turbines, breathing room
to fund its operations.
But it does not ease its net debt, which stood at about 130
billion rupees at the group level at the end of June, and does
not apply to its overseas bonds.
"It buys them time," said Tobias Bettkober, a fund manager
with Holinger Asset Management in Zurich, which manages $500
million in convertible bonds globally and has offloaded most of
its Suzlon convertible holdings.
"Any help from the domestic banks as partners would help
them to regain credibility, which is close to zero, I suppose,
among offshore investors," he said.
Suzlon shares closed 10.7 percent higher at 17.10 rupees on
Tuesday, notching their biggest one-day gain in nearly four
Under the deal, the rupee debt, which was due in five and
six years, will be restructured with a two-year moratorium on
interest and principal repayment, after which the loans will be
repaid over eight years at a lower rate, one of the sources
Another source said details were still being finalised, with
discussions around reducing interest on the loans from about 14
percent now to 11 percent. The sources had direct knowledge of
Suzlon has lost money for the past three years, although it
had an order book of 372.9 billion rupees as of Nov. 9.
"Their problem is too high leverage and too little cash-flow
from operations, and global headwinds for the industry on top of
that, and it's partly addressed, but not boldly," Bettkober
Suzlon declined to comment.
The debt to be restructured is held by about 20 Indian
banks, led by State Bank of India, the country's
largest lender, which had exposure to the company of about $659
million as of last month.
Suzlon had late last month announced its intention to enter
the country's corporate debt restructuring (CDR) process, and
the sources said it has now been admitted to it.
Suzlon's restructuring is the second-largest to be handled
via the CDR mechanism. Last year, lenders to the GTL group,
which includes GTL Ltd and GTL Infrastructure Ltd
, agreed to restructure about $3 billion, sources said
at the time.
Local lenders have proven willing to renegotiate terms with
large but troubled companies, prompting some critics to warn
about moral hazard.
A deputy governor at the Reserve Bank of India said earlier
this year that the CDR process is skewed in favour of big
borrowers and public sector banks, which are not required to
declare loans under CDR to be non-performing.
A central bank panel has proposed that banks book higher
provisions against restructuring loans. Starting in two years,
it wants most such loans declared non-performing.
Foreign banks in India and some Indian private sector
lenders tend not to participate in the CDR system, a voluntary
process whereby 75 percent of a borrower's creditors by value
must approve an easing of repayment terms.
In October, overseas Suzlon bondholders rejected a
four-month repayment extension sought by the company.
Despite Tuesday's gains, Suzlon shares are still roughly
half their year-high level in February and about 96 percent
below their 459.8 rupee peak in early 2008, during boom times
for the global wind energy sector.
(US$1 = 55.7450 Indian rupees)
(Editing by Muralikumar Anantharaman)