Wind turbine manufacturers in trouble

Suzlon wind energy project

Suzlon wind energy project: Image via Wikipedia

Beleaguered wind power major Suzlon, may be on the block. Sources indicate that Spain’s Gamesa is looking to pick up a majority stake in the company. Suzlon added in its statement to the stock exchanges that the news was both speculative in nature and inaccurate. Market rumours also have it that Suzlon’s founders the Tanti family may sell its entire 55% stake to Gamesa’s UK unit.

Suzlon is the most leveraged wind company with net debt to earnings before interest, taxes, depreciation and amortisation ratio of 4.2, say JPMorgan analysts. That compares with less than 1 for global peers.
There are two ways out when saddled with Himalayan debt – either sell assets to pay off the debts, or declare bankruptcy. Suzlon is selling off stakes in assets such as gearbox-maker Hansen. But the question is what could be going on in the mind of promoter Tulsi Tanti, who was the nation’s eighth-richest man in 2006. After all, Mr Tanti had picked ‘Suz’ in Suzlon from the word, soojh-boojh, which means intelligence, and ‘lon’ from the word, loan. One part of it, ‘lon’, seems to have run longer than desired. So, will the other inspiration, intelligence, come into play?
If investors bet that intelligence would play a more dominant role than passion, then they may not be wrong in speculating that a possible stake sale could happen. Of course, at what valuation is anyone’s guess.
Mr Tanti, who once delivered fortunes for private funds such as Chryscapital and Citigroup, now heads a company whose shares are down more than 85% from their peak. The company may have created a record in going for seven share sales in five years, but there may be no one to buy in the next issue.

Britain’s nascent wind manufacturing industry has suffered a blow after the owner of Scotland’s only large turbine plant went into administration. The plant near Campbeltown, owned by Danish firm Skykon, has been closed and more than 120 staff sent home without pay after Ernst & Young was appointed as administrators this week.

A spokesman for the administrators said several expressions of interest had been received for the business and that staff would be updated next week. The future of the plant has been uncertain for several years. The Scottish government last year agreed to provide a £9m rescue loan to persuade Skykon to buy it from Danish rival Vestas. But Skykon has been in insolvency proceedings for months in Denmark after a slowdown in wind turbine orders across Europe. Only about £2m of the loan has already been paid. Ernst & Young declined to comment on whether the Scottish government would get that money back.

The prospects of production resuming at the plant are bleak. The number of new wind farms being planned in Europe is falling because governments are withdrawing subsidies to cut budget deficits while energy companies’ balance sheets are becoming increasingly strained.

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