NEW DELHI: Private equity fund TPG Capital and a US-based global energy fund are in separate talks with loss-making Suzlon to acquire up to 25% stake in its German wind energy subsidiary, REpower Systems, for $500 million, a person aware of the development said.
The transaction will be done through a mix of fresh issue of shares by REpower and stake sale by Suzlon. Suzlon owns 90.7% in REpower and the funds from the stake sale could be used by the Indian wind-turbine maker to pare its total debt of around `10,000 crore, said this person.
When contacted, a Suzlon spokesman said: “We do not comment on market rumours or speculation.” An email sent to TPG Capital spokesman remained unanswered. Suzlon recently completed financial closure of refinancing and consolidation of debt worth `10,690 crore and also raised `1,188 crore through a rights issue. If the company sells around 12% stake of REpower, it could generate cash of around $250 million, or about `1,165 crore. REpower, listed on Frankfurt stock exchange, is bearing the brunt of economic uncertainty in Europe, with customers postponing projects.
For the quarter ended June 30, the company recorded revenues of e 213.1 million, down 29% over the year-ago period, with net profit of just e 1.8 million.
The German wind energy firm has a market cap of a little over e 1 billion, or around $1.2 billion, which means Suzlon is negotiating to sell stake at a significant premium. Suzlon had acquired a majority stake in REpower after a bidding war with Areva in a deal that valued the German company at around $1.6 billion. So, it is looking to dilute its holdings at a profit, compared to what it paid to win management control.
With environment concerns making them prized assets, alternative energy firms, particularly those related to clean energy, are on the radar of several global investment firms.
Suzlon, the country’s largest and one of the world’s top five wind-turbine makers, has reported losses in four of the past five quarters. For the three months to end June, its consolidated net loss doubled to `912 crore over the year ago period, exceeding analyst expectations, due to lower volumes and forex loss of Rs 250 crore.
The company is susceptible to forex fluctuations, as a large part of its consolidated revenues comes from outside India, especially Europe that is yet to come out of the economic downturn. The Suzlon scrip last traded at Rs 56.45, barely above its 52-week low and at half the price it quoted last September.
The move to pare stake in REpower and raise fresh funds for the group comes even as Suzlon has been looking to build synergies with the German arm.
Early this year, Suzlon entered into an agreement with REpower to support the German firm as its sales agents through its local Suzlon subsidiaries in the US and Australian/New Zealand markets.
This is the second time that Suzlon is trying to reduce its holding in an international subsidiary. It had earlier significantly brought down its holding in another international unit – Belgian gearbox technology firm Hansen Transmissions International – partly to pay back its lenders and reduce debt.
Last November, it sold 35% stake in Hansen for $361 million that brought down its stake to 26%. Suzlon had been reportedly looking to sell the remaining holding, as it doesn’t see any major benefit from retaining the stake.
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