Suzlon Energy has rescheduled its payment to Martifer, the Portuguese construction, energy and distribution company, for its 22.7% stake in Repower. Suzlon will now pay €65mn in December 2008, €30mn in April 2009 and the remaining €175mn in May 2009. The agreement will see Suzlon take control of Repower much later than scheduled but also gives it way out of a messy situation.
Now Suzlon had an option till May 2009 to buy this stake from Martifer and had provided a bank guarantee too for the same. But, on September 1 2008, it announced to the BSE that it had exercised the option to buy the stake. It would pay €270mn in an agreement to be concluded by December 15, 2008. The next day, it also announced its intention of seeking a domination and profit and loss transfer agreement with Repower under German law.
Once Suzlon’s stake went up to 90% after acquiring Martifer’s stake, it would then under German law, acquire the remaining stake. Though Suzlon has a substantial stake even now, in Repower, it needs to acquire full control so that it can make use of the superior technology possessed by Repower. As of now, in some ways, both companies compete with each other.
Suzlon has been facing issues in its turbines, with broken blades, and perhaps it may be able to overcome these shortcomings with Repower’s help. It had planned an Rs 1,800 crore rights issue which would help part-finance its capex and this acquisition. But in two months, the market meltdown hurt its stock so badly that it had to call off the rights issue. It also suspended its domination agreement with Repower. That still left the matter of an exercised option and a bank guarantee hanging over its head.
That is now taken care of by the revised schedule, which still means that Suzlon has to raise a substantial amount of money over the next five months. Its share price which had fallen to Rs 36 on Dec 2 has now risen to Rs 54. That’s still a fairly large equity dilution that stares it in the face though. Notionally, raising €270mn or Rs 1,700 crore will mean issuing 31.5 crore shares, which is adding about 20% to its existing equity