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  1. 1. Presentation on Rescuing Distressed Companies Suzlon Energy Limited CA. Salil Mishra CA. Rakhee Garg CA. Rohit Kr. Modani CA. Pawan Gattani CA. Vikesh Bansal CA. Bineet Sundriyal
  2. 2. Contents • • • • • • • • • Growth of Indian Wind Energy Market Company Profile Financial Profile Key Highlights of H1 FY 14 Why Restructuring was/is required Highlights of Restructuring Scheme (CDR) Benefits of Restructuring Recent Positive Developments in Wind Energy Way Forward in Restructuring
  3. 3. Growth of Indian Wind Energy Market • • • • In FY 2010-11, India added over 2300 MW of new capacity to emerge as world’s 3rd largest market, behind China and USA Cumulatively, India is 5th biggest market in the world with over 14 GW of commissioned wind energy capacity Market grew almost three fold in size over the last 6 years Estimated wind power potential between 48 – 100 GW 2005 4388 MW 1995 470 MW 2000 1170 MW March 2011 14000+ MW Growth of wind energy in India * CWET & MNRE estimates 48GW but industry experts believe it could be up to 100 GW
  4. 4. Company Profile • • • • • Incorporated in 1995, IPO in 2005, Suzlon Group is today ranked as world’s 5th largest wind turbine supplier. International Company with presence in markets across Asia, Australia, Europe, Africa and North & South America with over 20,000 MW of wind energy capacity. Installed Capacities in 30 countries and Operations across 32 countries with employee strength of over 13,000. Comprehensive product portfolio – from sub-megawatt on-shore turbines at 600 Kilowatts (KW), to the world’s largest commercial 6.15 MW offshore turbine – with a vertically integrated, low-cost, manufacturing base. Headquartered at Suzlon One Earth in Pune, India – the Group comprises Suzlon Energy Limited and its subsidiaries, including REpower Systems, Germany and stakes in erstwhile subsidiary companies in Belgium and China.
  5. 5. Global footprint : 6 continents, 32 countries Cumulative group installed base of more than 16,000 MW accounts for ~9% of global installations backed by robust sales infrastructure (Figures in MW) Europe installations Germany 1,968 France 1,160 UK 548 Others 1,345 Total Germany 5,021 Belgium Turkey Canada UK China France N. America Canada 4 USA Total Portugal & Spain 2,991 2,995 Italy Japan Nicaragua Sri Lanka S. America Brazil Nicaragua Total India 384 63 447 Total Asia Brazil REpower China 985 Japan Suzlon 118 India Sri Lanka Total 5 Both 1: As on March 2011; Includes all installed and SCADA connected systems; 2. REpower installation from 2001 onwards Australia 6,218 10 7,333 743
  6. 6. Presence in India Footprint in India  #1 position and leading market share of in India for 13 years consecutively  Installed base of more than 20,000 MW  Four mega size wind farms including Asia’s largest wind farm at Kutch (Gujarat) Dhule wind farm in Maharashtra 700+ MW & expanding… Wind farms in Karnataka; total capacity more than 490 MW & expanding…  40 wind farms across 8 states Farms at Soda-Mada, Sadiya and Pohra in Rajasthan with a total capacity of 400+ MW & expanding… Sankaneri wind farm in Tamil Nadu Over 650 MW & expanding…  World class manufacturing facilities catering to leading world markets
  7. 7. Financial Profile (Stand Alone) Sales Turnover Vs Net Profit 8,000.00 6,000.00 4,000.00 2,000.00 0.00 -2,000.00 -4,000.00 Sales Turnover 2007-08 6,871.99 2008-09 4,358.66 2009-10 3,505.72 2010-11 7,254.47 2011-12 6,945.13 2012-13 1748.11 Net Profit 1319.79 -539.96 -1238.69 -260.49 -498.77 -2842.97
  8. 8. Financial Profile (Consolidated)
  9. 9. Key Highlights of H1 FY 14 Operations: Total revenues at Rs 4,769 Crs in Q2 FY14; 23.8% QoQ growth  Suzlon wind volumes @ 220 MW; First half volumes at @ 440 MW Group EBITDA excluding FX is positive @ Rs 39 Crs Order inflow of 395 MW in 2Q; aggregating to order inflow of 751 MW in H1 Launched 3.0M122- new low wind speed product variant for Canada/Low wind sites Entry in Uruguay market with first order of 65 MW RE Power installations crosses 5,000 WTGs; Group installations at ~22.5 GW Assets Sale China unit – divested 75% stake to a JV with a strong local partner
  10. 10. Key Highlights of H1 FY 14 Project Transformation: Working capital further rationalized to 9.9% of sales, against 13.6% as on March’13 Monetization: Divested 75% in the China based manufacturing facility Total realization - $28M (Rs. ~173 crs) Business Performance: Achieved 220MW in Q2FY14 (440MW in H1FY14) against ~250MW annual sales in entire FY13 at Suzlon wind Performance continues to be impacted due to lower volumes RE Power performance on track
  11. 11. Key Highlights of H1 FY 14 Progress achieved in reducing fixed costs through project transformation : Non recurring Group-wide restructuring costs under Project Transformation – Rs. 67 Crs Net results after tax impacted by Forex losses due to unfavorable currency fluctuations – Rs 70 Crs Key Action Taken Stringent cost control measures in place Rationalizing travel and consulting expenses Rationalized office and factory space
  12. 12. Why Restructuring was/is required • High Cost Debt (15%-16%) & Foreign Currency Loans accumulated in the Company for acquisitions amounting to Rs. 10,500 Crs for RE Power, Germany and Rs. 2,500 Crs in Hansen, Belgium. • The Company launched its heavier turbines without conducting crucial test for exploiting demand-supply gap and the blades cracked – same resulted in $ 10 Crs as expenses for repairing of the turbine blades. • US based customer Edison Mission refused to make payment of Rs. 1,081 Crs due to technical default in turbines. • The Company took term loans for 3-5 years whereas the Business Model for Wind Farm Revenues/Returns was for longer period 13-15 years. • Inability to repatriate cash from German Subsidiary (RE Power) due to Ring Fencing rule in Germany & Objection by the Bankers of the Subsidiary Company. • The foreign bond holders refused extension of loan resulting in default in loan repayment by the Company in Oct 2012 (Rs. 1,300 Crs). • Working Capital Shortage in the Company as the banks were not lending further the Company was unable to execute the order book with the Company ($ 7.1 Bn).
  13. 13. Why Restructuring was/is required • Global slow down in Wind Energy Industry due to Global Crisis in 2008. • Penalties were being levied on the Company for the delay in execution of Projects. • • Synergies envisaged from RE Power’s acquisitions did not yield immediate results. Company is incurring losses in the last 3 financial years & has huge debts – both domestic & international. The same has resulted in weak financial position. There were losses due to FX Fluctuation on the Foreign Currency Loans. Operating Revenues reduced from Rs. 7K Crs to Rs. 1.7K Crs). Operational Cost – RM cost was 75% of Revenues in 2012-13 as against 65% in 201112. Total Operational Cost was 99% of Revenues in 2012-13 as against from 80% in 2011-12. In the Standalone Suzlon – there are Operational Inefficiencies with RM cost being 97% of Revenues in 2012-13 as against 65% in 2011-12. Total Operational Cost was 173% of Revenues in 2012-13 as against 87% in 2011-12. Significant cash flows from operations have been utilized for payment of bank dues and therefore the Suzlon and its domestic subsidiaries have insufficient money (shortage of working capital) to continue operations. Roll-back of rules related to Generation Based Incentives (GBI) & Accelerated Depreciation in India. • • • • • •
  14. 14. Highlights of Restructuring Scheme (CDR) • • • • • • • • • The CDR Proposal was recommended by SBI, the lead lender (Rs. 3,500 Crs) and the same was approved by the CDR Lenders (Total of 19 banks). Suzlon was looking at recasting Rs. 11,000 crore of its Rs. 14,568 crore domestic loans (as of the September quarter) – the final restructuring was for Rs. 9,600 Crs. The Banks have provided 2 years moratorium for the principal repayment and termdebt interest payments. The interest rate on the term loan has been reduced by 3% i.e. from 14% to 11%. The banks have also provided 6 months moratorium on the working capital. The interest during the 2 year moratorium period (Rs. 1,500 Crs) would be converted into equity. Additional working capital facility of Rs. 1,800 Crs provided for Operations. Equity infusion by the Promoter group of Rs. 250 Crs and conversion of unsecured loan by Promoter Group of Rs. 145 Crs into Equity. IDBI infused Rs. 550 Crs in the Company by allotment of Preference Equity Shares against the sacrifice of interest on term loan.
  15. 15. Highlights of Restructuring Scheme (CDR) • • • • • • • Waiver of existing events of defaults, penal interest and charges etc. To issue equity shares in lieu of sacrifice of the CDR Lenders for the first three years from COD, if demanded by CDR Lenders. Extension of maturity date of convertible bond (Rs. 2,013 Crs) by 45 days. Suzlon would sell the non core assets/divest key subsidiaries as under and use the proceeds to prepay debt servicing obligations. Brand value of “Suzlon” would be explored as additional security for lenders. Trimming its work force by 20% by the end of the fiscal year through March 2013. Besides all this there would not be any additional Term Loan taken by the Company.
  16. 16. Benefits of Restructuring • • • • • • • • • Reduction in the Interest Rate of 3% (from 14% to 11%). Moratorium Period of 2 Years on Principal and Interest Payments. Conversion of various irregular/outstanding/devolved financial facilities into working capital term loan. Additional need based Working Capital provided. Infusion of Equity to provide stronger financial stability. Increase in Net Worth & EBITDA. Waiver of existing events of defaults penal interest & charges. The Company has sold stakes in the Belgium Subsidiary – Hansen. The Company has sold stake in the Chinese Subsidiary for Rs. 170 Crs and retained 25% stake in the JV for having presence in Chinese Market. The cash is yet to come.
  17. 17. Recent Positive Developments in Wind Energy • • • • • • • • • • There have been tariff increased for wind power by few states – Rajasthan, Gujarat, Tamil Nadu and AP. The Generation Based Incentive (GBI) Scheme has been revived in India. CERC has given guidelines requiring renewable energy target of 15% by 2020. EU also has targets for achieving 20% energy through renewable resources and announced stimulus packages for the same. Copenhagen Summit has put renewable energy in the spotlight with committed long-term funding of $ 100 bn per year by 2020 – the same would create opportunities for global players such as Suzlon in Renewal Energy. Estimated potential of ~ 50 GW, largely untapped. Currently 2 GW annual market, likely to grow to 4 GW size. Repower has launched “3.0MW 122 meter rotor, 60 hertz” specially designed for the low wind site for the developed countries. This segment offers the big opportunity as high and medium wind sites are used up in these markets. Dedicated Ministry and Established Regulatory Framework. Aggressive targets & commitment under Government’s National Action Plan (NAPCC)
  18. 18. Working Capital Management Components Rs./Crs Inventories 5,264 Trade Receivable 2,732 Due from Customer 2,936 Gross Working Capital 10,932 Less: Creditors/Advance from Customer Efficient Receivable Management by Bill discounting, Factoring and Forfeiting Availment of suppliers credit & Buyers credit to increase the credit period 8,601 Net Working Capital Recommendations 2,331 Advantage Current Cost of borrowings 11% to 16% Proposed Cost of Borrowing 3% to 5% Rs 180 crs saving in interest cost annually
  19. 19. Currency Risk Management What went wrong ? Total Unhedged Exposure as on 31.03.2013 Rs. 14, 718 crs Impact on P& L Fx loss of Rs. 307 crs booked Recommendations 1. To have a Risk Management Policy (RMP) 2. To Hedge the exchange risk by taking forwards 3. To take Interest rate swap (IRS) to hedge the interest rate risk
  20. 20. Other Internal Restructuring Measures 1. Rationalising the head counts (Rightsizing the man power. Total man power in Suzlon & RE Power is 12,366. Employee cost for 2012-13 was Rs. 2,133 Crs (Previous year Rs. 2,009 Crs) 2. Reduction of Operating Expenses required further. [3% increase Operating Expenses in 2012-13 – Rs. 18,077 Crs (PY Rs. 17,529 Crs)]. [13% decrease in Revenue in 2012-13 – Rs. 18,914 (PY Rs. 21,359 crs)] 3. Sale of Non critical assets (Estimated revenue $ 400 million) A Sale of Pondicherry Plants B Sale of Mangalore SEZ C Sale of Stake in SE Forge D Sale of US based Blade Plant E Sale of Chinese Suzlon Energy 4. FCCB Restructuring of $ 265 Million (Active dialogue with bondholders & their advisors)
  21. 21. Restucturing of RE Power Proposal 1 Merger of Suzlon with RE Power. Hindrance : RE Power’s local banks are believed to be blocking the merger. Way forward : Replace the local banks with Indian lenders . With Indian bank as lender company can go ahead with merger. The merged entity can bring back the huge cash balance of Rs. 1,700 Crs. Proposal 2 Sale of stake in Repower Hindrance : Suzlon considers this as critical asset. Does not want to sale it. Way forward : The most workable option for the company to become debt free. Start the process by listing the Company in London Stock Exchange by Issue of shares/stake offloading by Suzlon.
  22. 22. Thank You
  23. 23. Conclusion – Way Forward Operational: • Divestment/Stake Sale in Key Subsidiaries and Non-Core Assets. • Working with EU Banks for relaxation of restrictions on repatriation from Germany. • Replacement of EU Banks by Indian Bank for allowing repatriation from Germany. • Continued focus on reduction of headcount (450 in H1 FY 14 + 2,500 in FY 13). • Continued focus on reduction in cost (38% opex cost has reduced year on year). • Rationalisation of Working Capital (currently reduced to 9.9% of sales) • Continued R&D efforts for remaining market leaders in technology. Financial: • Asset Restructuring. • Foreign Currency Loan Restructuring. • Attracting PE Investor. • Refinancing of NFB WC facility at RE Power from new lenders. • Leveraging on cost advantage (through backward and vertical integration)
  24. 24. Customer’s in India Customer • • • Over 1,500 customers in India from across the industry sectors & geographies. Customer mix comprising of small/medium businesses, large corporates, PSUs etc. High Repeat Customer reflected – 45% share. New Business 45% 55% FY10-11 Orders Distribution by MW MW* Project Type DLF Group 217.50 PPA Hindustan ZInc 50.70 PPA MSPL Group 137.50 PPA Techno Electric 110.45 PPA RSMML 91.3 PPA Tata Group 88.65 PPA Ruchi Group 87.90 PPA Gujarat NRE Coke 87.50 PPA GACL 83.75 EWA Aditya Birla Group 75.00 PPA Bajaj Auto Group 68.00 EWA Green Infra (IDFC) 64.00 PPA GSPC 61.50 EWA G. N. Agrawal 52.20 PPA ONGC 51.00 EWA Ramco Group 48.10 EWA Reliance Group 45.00 PPA ITC Group 41.20 EWA K S Oils Group 32.80 PPA Indian Oil 21.50 EWA Indian Railways 10.50 EWA Repeat Business * Cumulative MW commissioned as of 31st March 2011 Project States Guj., Raj, TN Raj, Ktk Mah., Ktk TN, Ktk Raj Mah Guj, MP, Mah, Raj, TN Guj Guj Mah Mah Mah., TN Guj KN, Mah, TN, Raj Guj Guj., Ktk, TN Mah Mah, TN Guj, MP, Raj., TN Guj TN
  25. 25. Cash Flow Statements (Stand Alone) Cash Flow Statement Particulars CASH FLOW FROM OPERATING ACTIVITIES CASH FLOWFROMINVESTING ACTIVITIES Investments in subsidiaries Loans granted to subsidiaries Others CASH FLOWFROMFINANCING ACTIVITIES Proceeds from issuance of Global Depository Receipts Proceeds from long term borrowings Premium Paid on FCCB Repayment of FCCB Proceeds from issuance of zero coupon convertible bonds Proceeds from short-term borrowings, net Proceeds from issuance of debentures Interest paid Payment towards buy-back of FCCB Repayment of Long Term Borrowings Others NET INCREASE IN CASH AND CASH EQUIVALENTS Add: Acquiriing on account of Merger Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 2008 481 481 2009 -391 -391 2010 2,424 2,424 2011 762 762 2012 544 544 2013 283 283 -4,114 -1,746 1,914 -3,947 -2,679 -2,373 1,469 -3,583 -990 -3,492 1,886 -2,597 -147 -2,127 1,522 -752 -1,505 -2,213 -2,519 2,540 3,327 -1,177 808 2,010 -125 2,101 3,986 521 590 2,861 300 -365 -120 3,266 -709 523 2,781 453 -2,024 -646 -200 -315 572 399 994 -708 -578 -58 -351 -340 259 779 779 71 71 470 470 129 956 1,918 - -630 - -1,371 642 -345 -727 -118 -197 -13 -588 740 -1,214 107 -123 26 129 262 262 139
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