India - Suzlon considers selling domestic units to help pay for the acquisition of its German-based rival

Suzlon Energy, India’s largest wind power company, is considering selling stakes in some of its domestic units to private equity as one option to help pay for the acquisition of its German-based rival, Repower Systems.

The move comes as Indian groups that rode a global liquidity glut last year to launch ambitious foreign takeovers are facing increasing difficulties raising capital because of the international credit crisis.

Starting last year, Suzlon accumulated a 66 per cent stake in Repower, a wind turbine producer, by buying in the market and acquiring shares from French nuclear power company Areva.

But it still has an agreement to pay €270m ($338m) for an additional 22.5 per cent stake held by Martifer of Portugal. Payment is due next May. Suzlon planned to hold a Rs18bn ($363m) rights issue last month to help fund the Martifer deal but abandoned it because of negative market sentiment. Its shares closed on Friday at Rs47.60, 98 per cent lower than their highs in January.

Now the company is considering a range of options to raise the money to pay Martifer, including using cash generated from the second half of this financial year ending on March 31 and topping it up with debt.

If market conditions prevent Suzlon from raising the debt at reasonable interest rates, it is considering selling minority stakes in its manufacturing units to private equity firms.

A person familiar with the situation cited the example of a deal in September when Suzlon sold a 17 per cent stake for Rs4bn in SE Forge, which operates foundries to make components for the group’s wind turbines, to IDFC Private Equity, a domestic company.

The deal was not aimed at raising money to pay Martifer but the group has numerous domestic subsidiaries producing components for its wind farms, such as its towers and infrastructure services units, which could be used for divestments.

“The company could look at possible dilution in other Indian subsidiaries for raising additional capital to meet its ongoing requirements,” said one person familiar with the situation.

In an interview, Tulsi Tanti, the founding shareholder, chairman and managing director, said he did not expect any difficulty raising finance because banks were confident in the wind energy business model.

“Demand is not driven directly by the economy but by the regulatory initiatives on climate change,” he said.

Suzlon’s difficulties follow similar troubles at two other acquisitive Indian groups, Tata Motors and Hindalco.

Hindalco’s underwriters stepped in to support a rights issue to help refinance its acquisition of Novelis of Canada. Tata intervened after its rights issue was shunned by investors and underwriters could not make up the difference.