IS SUZLON ENERGY A GOOD BUY ?

Hansen Transmissions is a leading global player in manufacturing wind gear boxes.

Suzlon, based in the western city of Ahmedabad and controlled by billionaire Tulsi Tanti, announced in June it would sell all or part of its holding in Hansen to reduce debt.

Suzlon currently holds 92% of REpower but under German law must buy out the remaining shareholders in order to exercise full control and integrate the two companies. At the current value of REpower’s shares, 8% of the company would cost approximately $150 million, Mr. Sinha said, though a German court must approve the price Suzlon pays to the shareholders. A REpower spokeswoman declined comment.

Suzlon, which is based in the city of Pune and was founded by Indian entrepreneur Tulsi Tanti, was once a high-flying wind firm with aspirations to combine India’s cheap manufacturing with technological know-how to establish a global wind-turbine powerhouse. Its ambitions have been blown off course in the past couple of years, however, because of the financial crisis that buffeted the industry, manufacturing problems with Suzlon turbines and a high level of debt

Suzlon Energy, India’s biggest maker of wind turbine generators, has sold a 35-percent stake recently in Belgian wind gearbox maker Hansen, raising 370 million dollars as it moves to cut debt.

Suzlon Energy Ltd. aims to push for the completion of its purchase of Germany’sREpower Systems AG in the next few months after it finalizes new bank financing, a move that would allow the Indian wind turbine manufacturer to broaden its range of products and streamline its suppliers, according to Sumant Sinha, Suzlon’s chief operating officer.

In an interview, Mr. Sinha said the company would file for a so-called “domination agreement” in Germany “probably in a couple of months.”

Mr. Sinha said the company has spent about $100 million to retrofit blades that cracked on turbines in the U.S. and is making progress on putting its financial affairs in order.

Suzlon as a Speculative stock

Of the company’s total debt, about $250 million is debt owed to the Tanti family that will be converted into equity, he said. A further $500 million is in the form of convertible bonds. About $800 million is in loans from international banks and was used to fund the purchases of REpower and a stake in Hansen Transmissions International N.V., a Belgian turbine gearbox maker. The remaining $1 billion is in rupee-denominated loans from Indian banks.The recent sale of some of its Hansen stake brought Suzlon $370 million and a new $465 million loan from the State Bank of India will allow Suzlon to pay off the acquisition loan from the international banks in the next few days, Mr. Sinha said.

The remaining rupee debt is being refinanced with a consortium of Indian banks on terms that require no principal repayments for two years and no covenants for two years. Covenants are terms in a loan that require the borrower to meet specific financial metrics or face repayment demands. He said the interest rate on this new financing wasn’t yet fixed but would likely be around 10% annually.

That’s doubly good for companies like Suzlon. There are plenty of wind farms being built every year, and Chinese developers don’t require the biggest, newest machines. Friday, Suzlon landed two additional orders in China—for its older, less technologically-advanced machines. “Suzlon is poised to be a key player in this rapidly growing market,” the company said in a press release.

Now, the big challenge for Suzlon is to fend off the established turbine makers who also have their sights set on China. Vestas of Denmark, the global leader, said last week it saw China as its path to bolstering falling global market share.

In other news

As many as 47 Indian companies, led by corporate behemoth Reliance Industries and the country’s biggest lender, State Bank of India, have made it to the list of world’s biggest 2,000 companies by US magazine Forbes. However, five Indian companies — scam-hit IT firm Satyam Computer, realty firm Unitech, Suzlon Energy and two Anil Ambani group firms

Suzlon fell 13%, the most since 16 April, to Rs58.25. The shares had their longest losing streak since the 10 days ended 10 October 2008. The benchmark Sensex declined 3.1%.

Suzlon bought Hansen in March 2006 as a strategic asset, when the wind energy industry in Europe was in trouble. In March 2006, Suzlon’s Netherlands subsidiary AE-Rotor Holding BV had acquired Hansen, one of the world’s largest wind energy and industrial gearbox manufacturers, for $565 million or close to Rs 2,500 crore in an all-cash deal. After the takeover, Hansen, founded in 1923, was expanded with new manufacturing facilities in Belgium, India and China with an investment of Euros 950 million (over Rs 5,500 crore).

At 13%, Suzlon shares fall most since April

Orders, including those from India, may improve in the coming months after being delayed by the global recession, chief operating officer Sumant Sinha said in an interview. The company is currently refinancing borrowings, which stand at Rs13,700 crore, he said.

“If the company is able to refinance its debt, it will be a positive for the stock,” Bhargav Buddhadev, an analyst at Noble Group who has a “positive” rating on the stock, said over phone from Mumbai. “We feel that the worst is over for the company.”

http://www.suzlon.com/

COMPANY PROFILE

Conceived in 1995 with just 20 people, Suzlon is now a leading wind power company with:

• Over 14,000 people in 21 countries
• Operations across the Americas, Asia, Australia and Europe
• Fully integrated supply chain with manufacturing facilities in three continents
• Sophisticated R&D capabilities in Denmark, Germany, India and TheNetherlands

• Market leader in Asia and 3^rd largest wind turbine manufacturer in the world, Suzlon Market Share (Combined with REpower) rose to 12.3% thereby making Suzlon 3^rd

IT’S BLOWING IN THE WIND

* The company aims to raise about $1 billion from the sale of a 61.28 per cent stake

* It is evaluating four proposals and the deal could be concluded within a month or two

* Denmark-based Vestas and a Belgium-based consortium of major wind component makers are the frontrunners for Hansen

* Sources said the divesture of Hansen would not affect the gearbox requirements of Suzlon

* One of the main aspects of the discussions includes continuation of Hansen as a supplier of gearboxes for Suzlon

* Suzlon bought Hansen in March 2006 as a strategic asset, when the wind energy industry in Europe was in trouble

BSE: 532667 | NSE: SUZLON

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