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SUZLON AIMS FOR FULL CONTROL OF REPOWER

Sumant Sinha Image

Suzlon Energy Ltd. aims to push for the completion of its purchase of Germany’s REpower Systems AG in the next few months after it finalizes new bank financing, a move that would allow the Indian wind turbine manufacturer to broaden its range of products and streamline its suppliers, according to Sumant Sinha, Suzlon’s chief operating officer.

In an interview, Mr. Sinha said the company would file for a so-called “domination agreement” in Germany “probably in a couple of months.”

Suzlon currently holds 92% of REpower but under German law must buy out the remaining shareholders in order to exercise full control and integrate the two companies. At the current value of REpower’s shares, 8% of the company would cost approximately $150 million, Mr. Sinha said, though a German court must approve the price Suzlon pays to the shareholders. A REpower spokeswoman declined comment.

Suzlon, which is based in the city of Pune and was founded by Indian entrepreneur Tulsi Tanti, was once a high-flying wind firm with aspirations to combine India’s cheap manufacturing with technological know-how to establish a global wind-turbine powerhouse. Its ambitions have been blown off course in the past couple of years, however, because of the financial crisis that buffeted the industry, manufacturing problems with Suzlon turbines and a high level of debt.

Mr. Sinha joined the company 16 months ago — at a time when he said the company “to put it mildly, wasn’t in the best of shape” — and is trying to sort through the problems. Previously, he was chief executive of the retail arm of Indian industrial conglomerate Aditya Birla Group.

Mr. Sinha said the company has spent about $100 million to retrofit blades that cracked on turbines in the U.S. and is making progress on putting its financial affairs in order.

 Of the company’s total debt, about $250 million is debt owed to the Tanti family that will be converted into equity, he said. A further $500 million is in the form of convertible bonds. About $800 million is in loans from international banks and was used to fund the purchases of REpower and a stake in Hansen Transmissions International N.V., a Belgian turbine gearbox maker. The remaining $1 billion is in rupee-denominated loans from Indian banks.The recent sale of some of its Hansen stake brought Suzlon $370 million and a new $465 million loan from the State Bank of India will allow Suzlon to pay off the acquisition loan from the international banks in the next few days, Mr. Sinha said.

The remaining rupee debt is being refinanced with a consortium of Indian banks on terms that require no principal repayments for two years and no covenants for two years. Covenants are terms in a loan that require the borrower to meet specific financial metrics or face repayment demands. He said the interest rate on this new financing wasn’t yet fixed but would likely be around 10% annually.

The debt restructuring and the new financing is designed to provide Suzlon with the financial flexibility to push for full ownership of REpower, Mr. Sinha said. The domination agreement also will allow the transfer of technology from REpower to Suzlon.

Because of the downturn in the industry overall, in the year ending March 31, 2010, Suzlon is functioning at less than 50% of its 4200 megawatt manufacturing capacity, down from about 70% to 75% in the year earlier. Mr. Sinha said the company’s breakeven point was to have manufacturing running at 40% to 45% of capacity.

Mr. Sinha said there was now some “visibility that we are getting to the position where we will feel more comfortable.” He added: “There might be a few more risks out there but hopefully we are moving in the right direction.”

Source: The Wall Street Journal