Wires

UPDATE 3-India's Suzlon bondholders reject repayment extension

Share

* Suzlon sought to extend maturity of over $200 mln bonds byfour months

* Two tranches of overseas convertible bonds due on Thursday

* Shares fall as much as 5 percent after bondholders rejectextension

(Adds details, comments) By Tony Munroe and Sumeet Chatterjee MUMBAI, Oct 11 (Reuters) - India's Suzlon Energy Ltd

was set to default on redemption of more than $200million in overseas convertible bonds due on Thursday afterbondholders rejected a four-month extension, sending its sharesdown as much as 5 percent.

The world's fifth-largest maker of wind turbines was one ofnumerous Indian companies that rushed to tap the offshoreconvertible bonds market before the global financial crisis,often to finance overseas acquisitions.

Since then, many of the nearly two dozen Indian companieswith nearly $6 billion in foreign currency convertible bondsmaturing this year have struggled to meet their debt obligationsdue to a sharp plunge in share value, feeble earnings growth anda weaker rupee.

A total of $1.3 billion of convertible bonds are expected tocome up for redemption in the October-December quarter,brokerage Kotak Securities said in a report last month.

"I regret to announce today that the bondholders' meetingsdid not achieve the consensus we were hoping for and thefour-month extension sought by us has not been granted," KirtiVagadia, chief financial officer of Suzlon, said in a statement.

"We expect that an acceptable solution for all stakeholderswill be arrived at the earliest possible."

Suzlon would not be the first Indian issuer to default onits overseas convertible bonds. In 2009, generic pharmaceuticalsmaker Wockhardt defaulted on $110 million worth,although it has managed to restructure its debt and its stockhas soared this year.

"It's not good," Tobias Bettkober, a Zurich-based manager ofIndian convertible bonds with Holinger Asset Management, said ofSuzlon's default.

"It's showing lack of execution quality. It's problematic ofcourse for trust and sentiment for investors in India."

UNDER PRESSURE

Suzlon has been under pressure in recent years from aslowdown in global turbine sales and its debt, and has lostmoney for the past three years. While it has an order book of$7.2 billion, tight working capital squeezed its operations inthe June quarter.

At the group level, Suzlon had net debt of 130.17 billionrupees ($2.45 billion) at the end of June, rising from 105.44billion rupees in the year ago period, while its cash totalled13.72 billion rupees at end-June.

Suzlon has two other dollar bonds worth a combined $265million maturing in 2014 and 2016, Thomson Reuters data show.

Suzlon said last month it would seek approval frombondholders on Oct. 10 to extend the maturity of two tranches ofconvertible bonds due on Oct. 11 by four months to Feb. 11. Thatwould have given it time to sell more assets and attempt tocollect receivables.

Suzlon has said it aims to sell between $100 million and$200 million in assets this fiscal year; it has sold $40 millionworth, with another $60 million worth in the pipeline.

It recently filed a lawsuit in the United States to collect$208 million owed to it in early February 2013 by a unit ofEdison International , which has argued it does not needto pay due to what it says are defects in equipment bought fromSuzlon. Suzlon has said it "categorically" rejects that.

The larger of Suzlon's two bond issues due on Thursday has aconversion price of 97.26 rupees per share, while the other isconvertible to Suzlon shares at 76.68 rupees. Shares in Suzlondropped as much as 5.1 percent on Thursday to 15.70 rupees.

The stock has plunged about 83 percent in the last threeyears, wiping off $2.5 billion from its market value.

DEFAULT RISK

Fitch Ratings predicted in a report in February that abouthalf of the 55 Indian companies with maturing foreign currencyconvertible bonds in 2012 were at risk of some type ofrestructuring or default.

The combination of higher domestic borrowing costs and riskaversion among global banks has made it tougher for the smallerand mid-sized Indian firms to raise funds to pay bondholders.

On Thursday, State Bank of India , which has about$659 million of exposure to Suzlon, said banks would look atways for the company to restructure its debt, which couldinvolve Suzlon's Germany-based REpower subsidiary.

Santosh Nayar, deputy managing director at SBI, saidSuzlon's failure to win bondholder approval for the extensionwas "highly unexpected".

In July, Suzlon redeemed $360 million of overseasconvertible bonds after bondholders agreed to a 45-day deadlineextension, allowing it to raise bank loans for the repayment.

Indian banks, especially state lenders, tend to be willingto help major corporate clients through tough times, as has beenseen in the drawn-out case of embattled Kingfisher Airlines, and liquidations are extremely rare.

"It would be actually a helpful reference if you for oncehad an ordinary restructuring or wind-down of a company to thebenefit of the bondholders," said Holinger's Bettkober.

"That dodginess that you have around conversion to equities,around restructuring, unwinding companies -- that dodginess isthe prime cause of mistrust in India. And that's expensive interms risk premium that is then demanded."

($1=53.1350 Indian rupees)

(Additional reporting by Swati Pandey; Editing by Ron Popeski)

((tony.munroe@thomsonreuters.com)(+91 22 6180 7257)(ReutersMessaging: tony.munroe.reuters.com@reuters.net))

Keywords: INDIA SUZLON/