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Green Street: The stakes are high, but Suzlon still holds the cards in stand-off with bondholders

Wind turbine giant Suzlon received something of a shock when holders of $221m in foreign-currency convertible bonds (FCCBs) due to expire this month refused to grant a two-month extension.

The decision adds to the Indian company’s short-term financial problems and follows news that it is pursuing legal action in New York to make sure it receives a much-needed $208m payment from troubled developer Edison Mission.

But it is too early to push the panic button. Suzlon is in a position to play hardball with the FCCB holders, and will do so if it has to. Industry sources point out that the FCCB debt is unsecured, and that if the company is pushed into a “doomsday” scenario, then the bondholders will be last in line to get paid.

Sources describe the bondholders’ latest decision as “curious”, given that Suzlon was granted an extension for FCCBs that were due to expire in June, and duly paid on the agreed date in July.

Suzlon continues to enjoy the support of its group of senior secured lenders, who have even less interest in calling time on the Pune-based company.

Sources point out that the banks would be willing to extend Suzlon’s financing facilities, but will ensure that no new money ends up in the bondholders’ pockets. A new “high-yield” bond issue is still on the table, although the banks may not see it as the best option in the present situation.

Suzlon’s situation is serious, but it can point to its $7.2bn order book as underpinning its business case for the medium term.

The company’s asset-sale programme continues, with $60m due to be received from offloading its Chinese manufacturing operations, while the Project Transformation cost-cutting operation has begun.

German subsidiary REpower is in good shape, but Suzlon officials say the turbine maker is a “strategic” asset, so a sale would be a last resort, particularly with the current overcapacity in the market.

All in all, the FCCB holders have a lot to lose by forcing the issue, and everything suggests that a payment schedule will be agreed by the end of the month.

For Suzlon, the stakes couldn’t be higher, but it still has cards to play.

Ben Backwell's Green Street column gives Recharge readers a behind-the-scenes view of markets and corporate strategy.