Wind turbine maker Suzlon Energy Ltd said it had agreed to sell its German unit Senvion SE to buyout firm Centerbridge Partners for 1 billion euros (Rs.7,200 crore), in an all-cash deal that will help the group reduce its debts.
The companies have signed a binding agreement, which also has a future earn out clause of an additional 50 million euros, (about Rs. 360 crore), they said in a statement on Thursday.
Loss-making Suzlon has been under pressure over the last few years due to a slowdown in global turbine sales and a debt pile that had grown to Rs.17,323.23 crore on a consolidated basis. It was forced to restructure $1.8 billion (Rs. 9,500 crore) of debt after defaulting on a $200 million convertible bond redemption in 2012.
The company will use proceeds from the Senvion sale to cut its debts by Rs 5,000 crore, Suzlon Chairman Tulsi Tanti told TV channel CNBC TV18, and to focus on higher growth markets like India and the United States.
Shares in Suzlon opened up more than 4 percent on Thursday before ending down nearly 7 percent against a 0.4 percent rise in the benchmark BSE Sensex.
"The driver of Suzlon's valuation was this company. What will remain, if you sell that?" said Daljeet S Kohli, head of research at brokerage IndiaNivesh. "It's like saying you sell your house to retire the home loan and say I am richer. The fact is that you are on the roads."
On Monday, Suzlon said it had not approved the sale of Senvion while on Jan. 7 the company had denied it was in talks with potential buyers, calling a media report "baseless and false".
The chairperson of India's biggest bank said that Suzlon's move is a positive move forward. "The entire proceeds will go towards repayment of debts and to that extent Suzlon's interest burden will come down substantially. It should enable them to turn around and become a much bigger and a better company because of the lessening of the debt burden," said State Bank of India chairperson Arundhati Bhattacharya.
The bank is said to have lent the company around Rs 3,500 to Rs 3,600 crore, the highest among public sector banks. IDBI Bank's exposure is around Rs 2,000 crore. Other banks, such as Bank of Baroda, Indian Overseas Bank and Punjab National Bank, would be hoping to recover their share of Rs 2,800 crore.
Senvion, previously known as REpower Systems SE, was bought by Suzlon in a series of tranches totalling $1.4 billion that gave the Indian company full control in 2011.
Together with Senvion, Suzlon was the world's fifth largest wind turbine manufacturer. Suzlon's Tanti said ex-Senvion the company has an order book of 1,500 megawatts.
Centerbridge declined to comment on the deal but a source familiar with the transaction said roughly 550 euros would be put up by the private equity firm as equity.
(With inputs from Reuters)