Oct. 31, 2012
-- Suzlon Energy, India’s largest and the world’s fifth largest wind turbine company has initiated talks with its lenders to restructure its debt. Corporate Debt Restructuring is basically a mechanism by way of which a company endeavors to reorganize its outstanding obligations and should not be confused with bankruptcy. In the current environment where several Indian companies are defaulting their debt payments and getting into restructuring, in some cases as publically and embarrassingly as Kingfisher, Suzlon stands out as a very different and solid story. There are a lot of things going for Suzlon at this stage, the most important being their robust and expansive order book of over 7.2 billion dollars.
In sharp contrast to Kingfisher, Suzlon has a highly profitable businesses model, especially in India. There is huge potential in the business, brand favorability is still high and customer confidence is evident with the solid order book behind them and new orders being declared quiet frequently. The only issue with the company is the debt and the liquidity to service their orders. This is what makes Suzlon a different and promising story. The debt that has been accumulated due to the acquisition of REpower in a very different economic environment than today seems to be the only deterrent in the otherwise positive story. If the lenders and the company can sort this out in a way that business is protected and the imminent REpower merger can be brought about smoothly and swiftly, this restructuring could actually be the best thing to happen to Suzlon and its share holders in the long run.
With the company’s confidence in their lenders and the analysts’ prediction that the share price may not see further damage for now, it seems that Suzlon could actually make a turnaround. More than 1200 companies have availed of the CDR scheme and around 80% have come back with better capital structures and higher profits. However, the next few months and Suzlon’s steps towards consolidation and course correction will be critical to make this promising situation work in their favor.