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UPDATE 2-India's Suzlon bondholders reject debt extension; shares fall

Source : REUTERS
Last Updated: Thu, Oct 11, 2012 18:51 hrs

* Suzlon sought to extend maturity of over $200 mln bonds by four months

* Two tranches of overseas convertible bonds due on Thursday

* Shares fall as much as 5 percent after bondholders reject extension (Adds share price, background on convertible bonds)

By Tony Munroe and Sumeet Chatterjee

MUMBAI, Oct 11 (Reuters) - India's Suzlon Energy Ltd was poised to default on redemption of more than $200 million in overseas convertible bonds due on Thursday after bondholders rejected a four-month extension, sending its shares down as much as 5 percent.

The world's fifth-largest maker of wind turbines was one of many Indian companies that rushed to tap the convertible bonds market before the global financial crisis, mostly to finance overseas acquisitions.

Since then, many of the nearly two dozen companies that had nearly $6 billion in foreign currency convertible bonds maturing this year have been struggling to meet their debt obligations due to a sharp plunge in share value, feeble earnings growth and a weaker rupee.

A total of $1.3 billion of convertible bonds are expected to come up for redemption in the October-December quarter, local brokerage Kotak Securities said in a report last month.

Suzlon is set to become the first prominent victim of the costly debt, after companies like Subex Ltd struggled to raise funds to redeem the bonds as their shares slumped well below the trigger level for converting the bonds to equity.

"I regret to announce today that the bondholders' meetings did not achieve the consensus we were hoping for and the four-month extension sought by us has not been granted," Kirti Vagadia, chief financial officer of Suzlon, said in a statement.

"We expect that an acceptable solution for all stakeholders will be arrived at the earliest possible," Vagadia said.

Suzlon has been under pressure for the last few years from a slowdown in global turbine sales and its debt pile. It posted a net loss in the April-June quarter compared with a profit in the year-earlier period.

At the group level, Suzlon had net debt of 130.17 billion rupees ($2.45 billion) at the end of June, rising from 105.44 billion rupees in the year ago period, while its cash totalled 13.72 billion rupees at end-June.

Suzlon said last month it would seek approval from bondholders on Oct. 10 to extend the maturity of two the tranches of convertible bonds due on Oct. 11 by four months to Feb. 11 to give it time to raise funds to repay bondholders.

Suzlon raised $200 million through dollar convertible bonds in 2007, and the amount outstanding on this tranche was $121.4 million with a conversion price of 97.26 rupees per share, according to Thomson Reuters data.

The second tranche of convertible bonds worth $20.8 million and issued in 2009 had a conversion price of 76.68 rupees.

Shares in Suzlon dropped 5.1 percent on Thursday to 15.70 rupees, while the main Mumbai market index was trading 0.2 percent lower.

The stock has plunged about 83 percent in the last three years, wiping off $2.5 billion from its market value.

DEFAULT RISK

Fitch Ratings predicted in a report in February that about half of the 55 companies with maturing foreign currency convertible bonds in 2012 were at risk of some type of restructuring or default.

The combination of higher domestic borrowing costs and risk aversion among global banks has made it tougher for the smaller and mid-sized Indian companies to raise funds to pay bondholders.

While Subex, which provides technology services to telecoms companies, and Educomp Solutions Ltd struggled to meet their debt obligations this year, concerns remain about the ability of some other companies, analysts say.

Loss-making GTL Infrastructure Ltd has set up a committee to restructure its convertible bonds worth about $228 million due in November. Its stock has fallen 80 percent since 2011 amid concerns about its debt obligations.

In July, Suzlon redeemed $360 million of overseas convertible bonds after bondholders agreed to a 45-day deadline extension, allowing the company to raise bank loans for the repayment.

Investors heaved a sigh of relief after debt-laden Reliance Communications Ltd, India's No.2 mobile operator, managed to raise $1.2 billion from Chinese banks in January to redeem its convertible bonds.

($1=53.1350 Indian rupees) (Editing by Ryan Woo)



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