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Suzlon Faces 70% dilution on FCCB Restructuring Proposal


Suzlon has managed to get lenders to restructure $485 million of FCCBs, with a step up convertible bond issue that can be converted at Rs. 15.46, over five years, with an average coupon of 5%.

This sounds like Greek. But it’s like this:

  • Suzlon had to pay back $485 million, some in 2012 (already defaulted), some in 2014 and 2016.
  • Tough.
  • So they said okay, guys, what will it take?
  • They finally agreed to not demand $485 million (which is all of the 2012 and 2014 bonds, and half of the 2016 ones) immediately.
  • Instead, those loans are rolled over another five years.
  • The new loans will be paid at 5% per year in a step-up coupon, meaning the first year coupon will be low, the next year higher and so on. (Source: Bloomberg)
  • If the lenders want they can convert it any time at Rs. 15.46 per share.
  • RBI still has to approve, and I presume all shareholders need to say okay as well.

Truckload of Dilution

Suzlon has around 266 cr. shares outstanding. This includes a recently issued 18 crore shares as part of a Corporate Debt Restructuring agreement for rupee debt.

The new bonds carry a coupon of average 5% over five years. The first 18 months carry 3.25% interest and the rest, 5.75%. (Source: Company disclosure)

At the end of 5 years, lenders can convert the shares at 15.46 if they like. Assume they do.

At Rs. 60, $485 million is Rs. 2910 cr.

Converted at Rs. 15.46, that is an issue of 188 cr. more shares.

Remember they have only 266 cr. shares outstanding right now.

That’s 70% dilution.

Or Truckload of Repayment

What if the share doesn’t go above Rs. 15.46? Lenders won’t convert, and the company will have to repay all of that money.

It’s not apparent how, after the wind bubble has more or less gone bust, the company can generate the 3700 cr. needed to pay this loan back.

It had a loss of 4700 cr. in FY13, and a loss of Rs. 1,000 cr. in the last quarter.

Markets are loving it, with the stock up 6% at 14.1. The stock saw a run-up recently.


My view: I’m coloured by the past. So I’m not very confident of this deal helping the company, unless energy prices go through the roof. Technically though, the stock looks like an interesting short term trade if it went strongly above 15, with a 10% stop loss. Of course that applies to literally every stock nowadays – you could randomly pick a stock and it seems to go up 20% in no time!


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