Suzlon Energy's bondholders plan to take legal action over default

Banks unlikely to agree to a steep haircut

Suzlon Energy’s bondholders are planning to take legal action against the company for defaulting in repayment in mid-July. The bondholders have hired a legal firm, Kirkland and Ellis, to chalk out strategy. 

This comes in the backdrop of banks not agreeing to an informal offer by Brookfield which had offered to take over the company, provided banks take a significant haircut on their Rs 10,300-crore exposure. The secured lenders of Suzlon Energy and its subsidiaries had signed an Inter-Creditor Agreement in terms of circular of the Reserve Bank of India, dated June 7 for resolution of the debt of Suzlon group companies.

A banking source said Brookfield had not made any formal offer to the banks yet and they are currently in talks on how to resolve the issue. 

On June 21, Brookfield had sought 45 days from the banks to conduct a due diligence on the company. On July 16, the company defaulted to its foreign currency convertible bonds worth $172 million.

According to the plan discussed with the banks, Brookfield was to infuse fresh equity into the company, which would have resulted in the promoter stake getting diluted. 

The source also said Sun Pharmaceutical promoter, Dilip Shanghvi, would have an option to retain his stake in the company — provided he brings in 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 519 crore, taking into account Suzlon’s share price of Rs 4.25 as on Tuesday.  

In FY13, Suzlon was referred to the CDR cell for restructuring of its debt — taking into account positive long-term outlook of the wind energy sector and the package was approved by CDR Empowered Group in December 2012. The approved CDR package was implemented by execution of Master Restructuring Agreement (MRA) by all CDR lenders on March 28, 2013. Since then, the company has seldom showed good financial metrics (see chart). 

In FY19, the company has reported a massive loss of Rs 7,413-crore loss on revenues of Rs 2,543 crore. The company was downgraded to default category in April by Care Ratings after it missed its debt repayment deadlines. 

(With inputs from Raghavendra Kamath)