Suzlon Energy is set to reorganize their foreign currency convertible bonds (FCCB’s), thereby seeking help of Houlihan Lokey Inc., which are due in July, 2019. They are an American multinational financial services and investment banking company. There was a negative impact on the financials of Suzlon Energy at the time of bond issue. With this being the situation, it is implied that the shareholders are the one who will have to suffer. The loss is said to be proportional to the extent of the investment made. The company were about to carry out this operation of re-structuring of bonds in December, 2018. This was the reason of selling 49% of their operations and subsidiaries in order to raise funds to pare debt. At that time, Suzlon were looking to raise Rs 8000 crore by selling the aforementioned stake.
Houlihan Lokey Inc.
Houlihan Lokey Inc. are an independent investment bank which advises large public companies and also governments and institutions. Major services provided by the company include provision of expertise regarding distressed M&A’s, capital markets, valuations, strategic consulting, restructuring, mergers and acquisitions and fairness opinions. Houlihan Lokey Inc. is listed on the New York Stock Exchange (NYSE)-Class A.
The FCCB’s are currently trading overseas at a discount of 17%. This discount can be the result of the 43% plunge in the company’s share price on the BSE on 5th March, 2019. Further,the plunge was a result of the speculation on the company defaulting on repayment of their loans. Later, the company’s lenders also pledged shares for this cause. In addition to this, Suzlon had reported a net loss of Rs 280 crore in Q2FY18 whereas the figures almost doubled in Q3FY18 where the net loss was Rs 575 crore. The net debt of Suzlon is Rs 6803 crore whereas the working capital debt is Rs 3395 crore in Q3FY18.
Moreover, out of the $547 million FCCB’s issued by Suzlon in 2013, $375 million has already been converted into equity till December, 2018. The pre – determined rate of converting the remaining $172 million bonds will be restructured. This is because of the decline in the share price of the firm and the rupee depreciation versus the US dollar adding to their woes. Furthermore, redemption of bonds will be a task looking at the current decline in rates and the rate at which bonds were issued. Except the FCCB’s, outstanding loans of Suzlon include Rs 156 crore as in first nine months of FY19. In the future Q1FY20, their outstanding loan is Rs 639 crore. Further the company has no other option to repay the loans except by selling their assets. Sun Pharmaceuticals founder Dilip Shanghvi, in 2014 had invested Rs 1400 crore for 23% stake in Suzlon. Ever since, Suzlon’s market value has only crashed.
The FCCB’s bonds have a coupon rate of 5.75% to be matured in 16th July, 2019 with an outstanding amount of $172 million.
Suzlon Energy’s shares were up by 5.80% trading at Rs 7.30 apiece on the NSE as on 8th March, 2019.