Wind power company Suzlon Energy’s is selling part of its 71.3% stake in Hansen Transmissions, a gearbox maker for wind turbines. Ecofin, a London-based investment company that claims to specialise in global utility and infrastructure sectors, will buy a 10% stake in Hansen from AE-Rotor Holding BV, a subsidiary of Suzlon. It will now have an 11.62% voting and economic interest in Hansen, indicating it had a small stake earlier too.
The proceeds will generate additional cash for Suzlon, which needs capital to fund the buyout of Martifer’s stake in REpower. The consideration for the transaction has not been revealed. If we take the market price as on December 31, 2008, when the deal was finalised, it works out to £78.4mn or about Rs 553 crore at £1.17 a share. Suzlon had to pay about £62mn to Martifer in December 2008. This cash will provide it enough liquidity within the group, to fund the Martifer stake hike, without affecting its internal resources.
Suzlon had acquired Hansen when it was privately held, for about €465mn and had floated it on the LSE in December 2007, at a market valuation of €1.6bn. The IPO was made at £1.75 a share. So, the stake sale is at a much higher valuation compared to the original acquisition, but at a discount to the IPO valuation. Suzlon has to complete its acquisition of Martifer’s stake in REpower by May 2009, by paying an additional €205mn.
There is still the matter of where it will raise the money from. It has a significant stake in Hansen still. But Suzlon’s majority stake in Hansen will come down significantly, if it funds the entire acquisition with it. Under Suzlon’s agreement with Hansen, it can appoint two non-executive directors to the board as long as it holds 26% of voting rights in Hansen.
Suzlon would also presumably want to buy back the stake it has sold to Ecofin at a future date. That would ensure it continues to have a meaningful stake in Hansen. Ecofin will not sell these shares till June 2009. It also has the right to nominate one of the two directors to be nominated by Suzlon, as long its stake is 8% and above, but has said it will not exercise this right at the moment. Ecofin has the option to renounce this right till 31 March, 2009 in return for being released from the lock-in applicable on its holding.
If Suzlon is unable to find the cash to buy back this stake by June 2009, Ecofin will be free to sell its stake in the market. Suzlon’s gameplan would be to acquire Martifer’s stake in REpower by May 2009 or even earlier, with its stake crossing 91%. It will then complete the German domination agreement procedure to buy out the remaining stake. Once completed, it then has the option to dilute part of its stake in REpower, relisting it on some other exchange, perhaps. The proceeds can be used to buy back its stake in Hansen.
Suzlon has about Rs 1,400 crore cash while at the group level it is about Rs 3,600 crore, as per information given in its recent analyst conference call. But the cash in Hansen and REpower will not be available to it for deployment. However, dividend payouts in either of these firms will give it additional cash. Plus it needs cash for its own capex plans, which was about Rs 970 crore in the second half of FY09. There still remains the €205mn needed by May 2009; it remains to be seen where that is raised from.