Lenders to wind turbine maker Suzlon Energy Ltd , which last month defaulted on a $200 million convertible bond redemption, have agreed to restructure about 110 billion rupees of its debt, sources said.
The deal gives the world's No. 5 wind turbine maker, which has been squeezed by a combination of debt, tight working capital and falling global demand for turbines, breathing room to fund its operations.
But it does not ease its net debt, which stood at about 130 billion rupees at the group level at the end of June, and does not apply to its overseas bonds.
"It buys them time," said Tobias Bettkober, a fund manager with Holinger Asset Management in Zurich, which manages $500 million in convertible bonds globally and has offloaded most of its Suzlon convertible holdings.
"Any help from the domestic banks as partners would help them to regain credibility, which is close to zero, I suppose, among offshore investors," he said.
Suzlon shares closed 10.7 percent higher at 17.10 rupees on Tuesday, notching their biggest one-day gain in nearly four months.
Under the deal, the rupee debt, which was due in five and six years, will be restructured with a two-year moratorium on interest and principal repayment, after which the loans will be repaid over eight years at a lower rate, one of the sources said.
Another source said details were still being finalised, with discussions around reducing interest on the loans from about 14 percent now to 11 percent. The sources had direct knowledge of the situation.
Suzlon has lost money for the past three years, although it had an order book of 372.9 billion rupees as of November 9.
"Their problem is too high leverage and too little cash-flow from operations, and global headwinds for the industry on top of that, and it's partly addressed, but not boldly," Bettkober said.
Suzlon declined to comment.
The debt to be restructured is held by about 20 Indian banks, led by State Bank of India, the country's largest lender, which had exposure to the company of about $659 million as of last month.
Suzlon had late last month announced its intention to enter the country's corporate debt restructuring (CDR) process, and the sources said it has now been admitted to it.
Suzlon's restructuring is the second-largest to be handled via the CDR mechanism. Last year, lenders to the GTL group, which includes GTL Ltd and GTL Infrastructure Ltd , agreed to restructure about $3 billion, sources said at the time.
Local lenders have proven willing to renegotiate terms with large but troubled companies, prompting some critics to warn about moral hazard.
A deputy governor at the Reserve Bank of India said earlier this year that the CDR process is skewed in favour of big borrowers and public sector banks, which are not required to declare loans under CDR to be non-performing.
A central bank panel has proposed that banks book higher provisions against restructuring loans. Starting in two years, it wants most such loans declared non-performing.
Foreign banks in India and some Indian private sector lenders tend not to participate in the CDR system, a voluntary process whereby 75 percent of a borrower's creditors by value must approve an easing of repayment terms.
In October, overseas Suzlon bondholders rejected a four-month repayment extension sought by the company.
Despite Tuesday's gains, Suzlon shares are still roughly half their year-high level in February and about 96 percent below their 459.8 rupee peak in early 2008, during boom times for the global wind energy sector.