Suzlon Energy Rights Issue closes on October 20; shares up more than 11%

Suzlon Energy Rights Issue closes on October 20; shares up more than 11%

Suzlon Energy Limited, one of India’s top manufacturers in the wind component manufacturing segment as per capacity, and one of the top renewable O&M service providers in India, will close its fast-track rights issue to raise up to Rs. 1,200 crore, on October 20, 2022. The rights issue of partly-paid up shares is priced at Rs. 5, which represents a 33% discount to the closing price of Rs. 7.46, as on October 17.

The Company will be raising Rs 1,200 crores in two tranches by issuing partly-paid up shares in the rights issue. The money being raised on application will be Rs. 600 crores (assuming full subscription), of which Rs. 583.5 crores will be utilized to prepay or repay debt. Suzlon will subsequently call in Rs. 600 crores as per its requirement, of which Rs. 316.5 crores will be used to pay off debt. In summary, the Company will be utilizing Rs. 900 crores from the rights issue to reduce the outstanding debt of the Company, which will strengthen the balance sheet, reduce interest cost outgo, and improve profitability. This will also unlock working capital for the Company to further increase its project execution and finance its growth. The Company aims to be debt free in the next eight years.

Suzlon’s rights issue does not have to meet a minimum subscription threshold for success; the Company will be able to use the proceeds raised through the rights issue irrespective of subscription level. The Promoters and Promoter Group have re-confirmed their participation in the upcoming rights issue, and also declared that they will be fully subscribing to the extent of their rights entitlement. One of the significant investor groups in the Company, Mr Dilip Shanghvi and related entities have also confirmed the intention to fully participate in the rights issue with subscribing for additional shares.

The wind energy sector is seeing significant tailwinds due to increasing importance of segments such as Commercial & Industrial (C&I) segment, which is gaining strong momentum due to wind energy being critical for high PLF projects. In addition, the emergence of hybrid power also is a key driver, as most of the customers and utilities prefer higher PLF and scheduled power availability, which is only attainable through a combination of solar and wind power. Finally, wind repowering is also expected to drive nearly 20GW of capacity till 2030, since existing wind capacities would need rebuilding.

Government policies also bode well for the wind energy sector, amongst which is the decision to stop electronic reverse auction for wind power projects in India, which had been creating bottlenecks in development of wind power. Stopping e-reverse auction is expected to again create a favourable bidding environment for projects, and accelerate wind capacity addition. The government has also created a separate class for wind energy renewable purchase obligations (RPOs), which is expected to boost the wind energy sector, and also allow better utilization of domestic manufacturing capacities. As per the new RPO norms, wind capacity creation of 58GW will be required by 2030.

Further, the Government of India has also set a target of 37GW of offshore wind power development by 2030, which is expected to be a key driver for wind energy. As per the recent Offshore Strategy paper released by the Ministry of New and Renewable Energy, eight zones each off the coast of Gujarat and Tamil Nadu have been identified as potential offshore wind energy zones. The MNRE has announced plans to roll out offshore wind bids of 4 GW capacity per year for a period of three years starting 2022-23. For the subsequent five years till FY30, the annual bid volume will increase to 5 GW. Finally, evacuation and transmission of power from the Offshore Pooling Substation (PSS) to onshore transmission will be provided free of cost for all offshore wind capacities that will be bid out up to FY 29-30.

With a footprint across 17 countries spread over six continents, Suzlon Energy has the largest wind installed base as a wind energy OEM, with approximately 13.45 GW of installed capacity in India as at June 30, 2022. It contributes towards nearly 33% of India’s wind installed base. It is also the largest wind O&M service provider in India, in terms of capacity. Suzlon also has an order book of nearly 1GW in place for execution. Due to its 27 year track record, and client relationships established over decades, it is well-placed to capitalize on industry tailwinds.