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Suzlon Energy Rights – Negative Surprise

September 26, 2008

Suzlon Energy will hold a board meeting on Sep 27, 2008 to consider a rights issue of equity shares to the extent of Rs18bn.

The target ceiling amount of Rs18 bn from the proposed rights issue corresponds to the 270 mn pounds consideration payable to Martifer by Dec 15, 2008 for acquiring its ~22.5% stake in REpower. Suzlon’s management had then indicated that the company had secured an in-principle tie-up for euro-denominated funding for the transaction. Accordingly, we view the decision to raise funds via any form of equity offering as a negative surprise.

Further, Suzlon Green Power (100% owned by the Tanti family), has committed to set up 3,500MW requiring investments of US$5bn in green assets over five years, in India and China. One has to view these developments cautiously as it might not be very easy for Suzlon Green Power/Honiton Energy to raise funding for investments in wind farms under the backdrop of the global credit crisis.

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