Mumbai, Oct. 11: Wind turbine maker Suzlon Energy Ltd is set to default on a stack of overseas convertible bonds worth $220.8 million (Rs 1,172 crore) after the bondholders refused to extend the deadline for redemption of two tranches of foreign currency convertible bonds (FCCBs).
The FCCBs were maturing today, and Suzlon had requested the bondholders for a four-month extension. The company had hoped to secure the extension, utilise the time to raise funds and redeem the bonds.
In September, the Pune-based company said it was working on various sources of funding that included the sale of non-critical assets, fresh debt, equity-linked or equity fund raising through the domestic and international capital markets.
However, the bondholders rejected the request for an extension of the redemption date, precipitating the current crisis.
“I regret to announce today that the bondholders’ meetings did not achieve the consensus we were hoping for and the four-month extension sought by us has not been granted,” said Kirti Vagadia, chief financial officer of the Suzlon Group.
The announcement sparked selling in shares of Suzlon. On the BSE, the scrip fell 2.11 per cent to close at Rs 16.20 after hitting an intra-day low of Rs 15.70.
Suzlon had issued $200 million zero coupon convertible bonds and $20.8 million 7.5 per cent convertible bonds. While the bondholders’ meeting was held in London yesterday, it is learnt that Suzlon did not receive a positive response to its 7.5 per cent convertible bonds with regard to its extension proposal.
An FCCB is a hybrid between a bond and a stock. Holders can either convert the bond into a fixed number of equity shares in the company at a pre-set conversion price or hold it as a bond in which case they will be paid the principal plus interest on maturity. Many companies had raised funds through this route around four years ago.
As the current stock market prices are much lower than the conversion price, FCCB holders have not preferred to convert them and instead held them till maturity. Therefore, issuers have to repay them in cash. However, because of the global slowdown and strained balance sheets of many of these firms, these issuers have been finding it tough to repay the bondholders.
Suzlon, founded by Tulsi R. Tanti, who was initially in the textile business, tried to grow through overseas acquisitions. Acquisitions like that of Hansen Transmissions International of Belgium and REPower of Germany were financed by debt.