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Thursday, 14 March 2013

Suzlon eyes SBLC-backed issue
IFR Asia 786 - March 09, 2013 | By Manju Dalal BONDS: Wind-turbine maker may set template for credit-enhanced fundraisings

Source: Reuters/Arnd Wiegmann Tulsi Tanti, chairman and managing director of Suzlon Energy, of India, attends a session at the World Economic Forum (WEF) in Davos. India’s Suzlon Energy is preparing an unusual offering of five-year bonds in US dollars as the debt-laden wind-turbine maker looks to refinance a US$658m loan maturing later this month. The deal, expected to print before the end of this month, is set to feature credit enhancement in the form of standby letters of credit (SBLC) from Indian banks. Suzlon has mandated JP Morgan on the deal with SBI Capital Mark ets as a co-arranger. A successful deal could set a template for other Indian issuers to access the international capital markets without breaching limits on the coupons they can pay overseas. A US$2bn 10-year credit-wrapped bond from another Indian issuer is already under discussion, according to sources. News of Suzlon’s overseas fundraising comes after the company restructured Rs95bn (US$1.7bn) of rupeedenominated debt in January. The workout was prompted after the company defaulted on US$200m of foreign currency convertible bonds in October 2012. Suzlon’s overseas debts, including the US$658m loan, were not part of the restructuring. The outstanding loan is related to a US$3.3bn-equivalent restructuring in December 2009, when Suzlon recast US$750m of foreign currency and Rs90bn of rupee borrowings. The SBLC-backed bond will be the first in US dollars from an Indian issuer, although a unit of Infrastructure Leasing & Financial Services did use a similar structure in 2012 for one of its renminbi-denominated sales.

Credit uplift
ITNL Offshore, fully owned unit of IL&FS Transportation Networks, raised US$100m-equivalent from an Export Import Bank of India-guaranteed three-year bond at 5.75%. Fitch rated the paper BBB–, reflecting Exim Bank’s unconditional and irrevocable guarantee.

Suzlon’s 19 Indian lenders will share the risk in the SBLC, which State Bank of India is expected to front. As such, the new bond is expected to be seen as exposure to the Indian lenders, rather than to Suzlon, suggesting a credit rating of around the BBB– mark. The company’s overseas bond is similar to a 2012 issue from South Korean machinery maker Doosan Infracore. The US$500m 30-year non-call five hybrid last September had the backing of letters of credit from three Korean banks, all existing creditors to Doosan. On the onshore front, Tata Motors used an SBLC from SBI to support a domestic bond issue in 2009. SBI syndicated the SBLC to other Indian lenders. Suzlon is believed to be targeting a 3.75% coupon on the credit-enhanced bonds, which equates to roughly 275bp over Libor. It will, however, still have to pay an undisclosed fee for the SBLC. Suzlon paid a fee of around 150bp for the SBLC backing its US$281m 18-month bridge loan in July 2012. The bridge financing paid an all-in margin in the range of 325bp–350bp over Libor. Until recently, Suzlon was mulling a loan in US dollars to refinance the debt. However, it opted for a bond to tap a new pool of liquidity and to save on the financing costs. Bankers said the company would have to pay well over above 400bp over Libor to access the loan markets. Suzlon has an outstanding US$90m five-year zero coupon bond maturing in July 2014. Besides the US$200m foreign currency convertible bonds on which Suzlon defaulted in October 2012, the company also has a combined US$265m of CBs maturing in 2014 and 2016. The company’s stock hit a record low on February 28 on news that its founders had sold a 6.2% stake. The shares clawed back some of those losses, but were down 11% at Rs16.9 last Friday. Company Profile Firm Profile Fund Profile LP Profile (Launches in a new window)