Mumbai: Suzlon Energy Ltd’s default on bond payments well worth $172 million this week did not come as a main surprise. The corporation has been suffering to fulfill its debt covenants for some time, which changed into additionally pondered in its credit score rankings.
In early April, Care Ratings downgraded Suzlon’s economic contraptions and banking facilities to ‘default’ score, bringing up delays in repayments. The organization started lacking payment obligations after a steep fall in volumes started eroding its sales and earnings.
From an operating earnings of ₹2,499 crore in FY17, the agency slipped into running losses closing financial, as volumes fell sharply to 496 megawatt (MW). In FY17, it had garnered volumes of one,573 MW, 3 times the level in FY19.
The shift to auction-based capacity additions and the consequent disruption to the marketplace stuck all stakeholders, along with Suzlon, off-protect. As a result of the alternate, wind capability additions in India dropped to multi-yr low of one,523 MW closing financial. In FY17, wind potential additions had stood at as excessive as 5,500 MW.
The steep fall in tariffs in auctions led nation governments to desert electricity purchases through feed-in tariffs mechanism, a huge supply of business for Suzlon and different stakeholders. Under the sooner system of feed-in price lists, states purchase strength at pre-determined charges and those are remunerative for builders. The low tariffs in aggressive bidding, then again, crimped returns of all stakeholders. This stalled investments, impacting capability additions.
Of course, the enterprise’s issues aren’t on my own answerable for Suzlon’s modern-day scenario. Its debt binge way to beyond missteps proved to too large a burden, and the organization did now not circulate in time on stake income and asset monetization to lessen its debt burden.
Suzlon did sell its German subsidiary Senvion S.A. In 2015 and refocused its energies on the Indian market. But possibly the sale changed into a tad past due, because it had already misplaced leadership in the Indian market by way of then.
Helped via task awards by way of government entities over the past 12 months, industry participants anticipate potential addition to enhance in the cutting-edge fiscal. Ratings corporation ICRA estimates the wind zone to add 3,500-4,000 MW in potential in the contemporary fiscal. But as seen within the ultimate years, execution is a key mission. Land acquisition, grid connectivity and economic closure stays key hurdles.
Besides, the quantum of capability additions and the pace of recovery is just too gradual for Suzlon’s comfort. The incremental volumes can bring Suzlon out of the running losses. But it still has to discover a manner to convey down the debt. Creditors can’t perpetually anticipate their bills. As of ultimate financial, Suzlon has debt of ₹11,141 crore (internet term debt and operating capital debt).
Further, given the ongoing demanding situations of public sale primarily based machine, it’s miles imperative that the authorities revitalizes small scale capacity additions (much less than 50 MW) with coverage assurances on price lists and strength buy agreements. The contracts may be revised periodically adjusting to the marketplace quotes. This will cause the ability addition cycle, providing plenty required push to gadget manufacturers and stakeholders at huge.