Indian wind turbine specialist Suzlon fell into unplanned bankruptcy this week after almost a year of speculation, by defaulting on loan repayments. Its owners seem to believe that it will emerge from bankruptcy protection and remain in business after secured creditors and Suzlon signed an inter-creditor agreement, so they can help to plan a way of the mess.
Vestas throughout the first half of this year said it was willing to pay €1 billion to the major shareholders to buy Suzlon, but it was turned down with the shareholders, believing it is worth far more.
While conventional balance sheet analysis may not agree with Suzlon, it has recurring Operations and Maintenance revenues of around $280 million a year, an installed base of over 15 GW of wind turbines, and has a further 6-7 GW in development for 2020 and more like 9 GW for 2021. Its problem is cashflow, due to doing too little business in its native India over the past 24 months. The Indian market has become hugely price sensitive, a position created and promoted by government auctions all at unlikely low prices, which international businesses find unattractive.
But while this approach may have helped the Indian government to get electricity cheaply, it has not served Suzlon and its local rivals well, denying them R&D cash, and keeping their biggest turbines at 2.6 MW, while others are pushing towards 10 MW and 12 MW using a much longer blade and larger swept area. The longest Suzlon blade is a carbon fiber 63 meter blade, while GE Renewables hopes to release a 107 meter blade during 2021 with 12 MW output at peak.
This R&D lead built up by the more profitable European businesses is about to bite back in India. Vestas, Senvion, and Enercom have all began to make inroads there, having been a little halfhearted prior to 2016/17. Now they are ramping up production in India and while much of this is to gain lower labor costs, in order to supply the wider Asia Pacific, some of these turbines will find their way into the Indian market, and push Suzlon down further.
There is one potential deal that the press have speculated on, which involves Canadian asset manager Brookfield Asset Management, which is in talks with Suzlon’s creditors to restructure the outstanding bank loans.
It might be that Brookfield buys the O&M workload outright, and the money is used to fund the company going forward. It would leave Suzlon with cash, but without that renewable operations revenue. On the other hand it might cut down considerably on its payroll, with Brookfield taking on some of the 3,700 employees that Suzlon has in India.
That would only leave the assets of existing development, wind data for the past four years and some considerable land parcels and if Suzlon defaults again, those won’t buy it much. Brookfield manages $47 billion of assets in renewables, with 18 GW, including 4.8 GW of wind.
However permitting on land in India has been one of the drawbacks, so a chunk of pre-permitted land may well be worth quite a bit. But whether or not that will lead to a future for Suzlon what equates to more than the €1 billion offered to it by Vestas, we doubt very much.