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Trading opportunity
Suzlon is applying for ‘squeeze out’ of REpower after having acquired
95% of the company. Successful acquisition of the remaining stake,
which may take 6-12 months, may pave the way for full management
control of REpower by Suzlon. However, REpower’s lenders’ approval may
still be needed for full control. Loans from promoters and US$150-200m
FCCB issuance will help fund the acquisition and may ease liquidity
constrains. This is a substantial positive for Suzlon. Fundamentally, there
are still numerous concerns to have a BUY on Suzlon. However, the stock
does seem to offer a trading opportunity from these depressed levels.
Suzlon increases stake in REpower to 95%
Suzlon yesterday announced that it has increased stake in its German
subsidiary, from 90.5% to 95% through open market purchases. Under the
German Stock Corporation Act, a shareholding of 95% in a German stock
corporation enables the majority shareholder to initiate squeeze-out
proceedings in respect of minority shareholders. Our conversations with
Suzlon’s management reveal that it would take at least 6-12 months for the
company to complete buyout process and obtain regulatory approvals.
Access to REpower’s balance sheet and management control
By acquiring the remaining stake in REpower, Suzlon aims to gain
management control and access to the subsidiary’s balance sheet (we expect
REpower to have a net cash of €168m or ~Rs11bn at the end of FY11).
Suzlon will also be able to shift some part of manufacturing for REpower to
India, thereby reducing costs and improving margins.
Funded through promoter debt; announces FCCB issue
Suzlon has increased stake by 5ppt in REpower largely through promoter
debt. Promoters had sold c.2% stake in Suzlon on 14th March. Suzlon has also
announced issue of FCCBs due 2016, to be traded in Singapore Exchange, to
fund the balance acquisition. The issue opened yesterday and conversion
price has been set at Rs54 and bonds bear a yield to maturity of 6.5%.
A positive development, but balance sheet concerns linger
Acquisition of stake in REpower is certainly a positive development for Suzlon.
However, it is time consuming and may need lenders approval. In the
meantime, poor international sales and upcoming debt payments are a major
concern. It will take many months to get more clarity on REpower. For
investors with appetite for risk, the stock does offer a trading opportunity
after underperforming for last few years.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Trading opportunity
Suzlon is applying for ‘squeeze out’ of REpower after having acquired
95% of the company. Successful acquisition of the remaining stake,
which may take 6-12 months, may pave the way for full management
control of REpower by Suzlon. However, REpower’s lenders’ approval may
still be needed for full control. Loans from promoters and US$150-200m
FCCB issuance will help fund the acquisition and may ease liquidity
constrains. This is a substantial positive for Suzlon. Fundamentally, there
are still numerous concerns to have a BUY on Suzlon. However, the stock
does seem to offer a trading opportunity from these depressed levels.
Suzlon increases stake in REpower to 95%
Suzlon yesterday announced that it has increased stake in its German
subsidiary, from 90.5% to 95% through open market purchases. Under the
German Stock Corporation Act, a shareholding of 95% in a German stock
corporation enables the majority shareholder to initiate squeeze-out
proceedings in respect of minority shareholders. Our conversations with
Suzlon’s management reveal that it would take at least 6-12 months for the
company to complete buyout process and obtain regulatory approvals.
Access to REpower’s balance sheet and management control
By acquiring the remaining stake in REpower, Suzlon aims to gain
management control and access to the subsidiary’s balance sheet (we expect
REpower to have a net cash of €168m or ~Rs11bn at the end of FY11).
Suzlon will also be able to shift some part of manufacturing for REpower to
India, thereby reducing costs and improving margins.
Funded through promoter debt; announces FCCB issue
Suzlon has increased stake by 5ppt in REpower largely through promoter
debt. Promoters had sold c.2% stake in Suzlon on 14th March. Suzlon has also
announced issue of FCCBs due 2016, to be traded in Singapore Exchange, to
fund the balance acquisition. The issue opened yesterday and conversion
price has been set at Rs54 and bonds bear a yield to maturity of 6.5%.
A positive development, but balance sheet concerns linger
Acquisition of stake in REpower is certainly a positive development for Suzlon.
However, it is time consuming and may need lenders approval. In the
meantime, poor international sales and upcoming debt payments are a major
concern. It will take many months to get more clarity on REpower. For
investors with appetite for risk, the stock does offer a trading opportunity
after underperforming for last few years.
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