Brookfield's plan to acquire cash-strapped Suzlon hits a roadblock

Canadian financial powerhouse Brookfield’s plan to acquire Suzlon has hit a roadblock, with the Canadian firm asking Indian banks to take a ‘significant haircut’ on its Rs 10,300-crore debt. The haircut by banks could go as high as 70 per cent — taking into account similar deals with loan defaulters, said the source.

Suzlon has become a non-performing account for the Indian banks from the June quarter after it defaulted on its loan repayments. A banking source said they had not received any response from Brookfield which sought 45 days to conduct due diligence on the company on June 22. The valuation of the firm is being conducted by Duffs and Phelps, the source said.

The source said Brookfield’s offer to infuse fresh equity into the company would depend on the haircut to be taken by the banks. “Once there is clarity on the haircut by the banks, Brookfield will make its offer. As of now, banks have not given any indication on the haircut,” said the source.

According to the source, if the deal takes place, 20 per cent stake held by the promoter Tulsi Tanti will be diluted. At the same time, Sun Pharmaceutical promoter Dilip Shanghvi will have an option to retain his stake in the company if he brings proportional amount to buy fresh equity. In 2014, Shanghvi had invested Rs 1,400 crore to buy 23 per cent stake in Suzlon and invested an additional Rs 450 crore to develop the wind farm business. The stake is worth Rs 506 crore – taking into account Suzlon’s share price of Rs 4.14 a share as on Tuesday. 

On July 16, Suzlon defaulted on its bonds worth Rs 1,200 crore listed overseas. The company had said it was working on holistic solution for its debt and continued to be in discussions with various stakeholders in relation to its outstanding debt (including the bonds).

Suzlon has been funding its losses and repayment obligations through working capital reduction and cash and bank balance. The company’s cash and bank balances and liquid investments also reduced from Rs 486 crore as on March 31, 2018, to Rs 124 crore as on December 31 last year.  In FY19, the company reported revenue of Rs 2,543 crore and made a loss of Rs 7,413 crore (see chart). 

In FY13, Suzlon was referred to the corporate debt-restructuring (CDR) cell as it was unable to meet its commitments to banks. At that time, the lenders took into account the positive long-term outlook of the wind energy sector and the CDR package was approved in December 2012 and was implemented in March 2013. This will be the second time public sector banks would be taking a significant haircut.