Can Tulsi Tanti bail Suzlon out of its biggest crisis?

The coming weeks will provide a clear picture to investors on where Tulsi Tanti, founder-chairman of Suzlon Energy Ltd will steer his company - deeper into a debt quagmire or pull it back from the brink.

The Pune-based wind turbine maker and wind energy developer is faced with an unprecedented cash crunch that has crippled its ability to complete projects in time.

The company's working capital had declined by Rs 1,898 crore in March 2012 from Rs 6,648.79 crore a year ago, according to Business Today Research Bureau.

The Tanti company has defaulted on payment terms of foreign debt and bond holders have rejected a request for a four-month extension for the payout. They are likely to pursue legal options next.

The company's foreign currency convertible bonds, or FCCBs - issued twice - totalling $220.8 million (Rs 1,150 crore) were due for redemption this month.

The foreign currency convertibles (Rs 1,348 crore) currently dominate more than half of Suzlon's unsecured loans.

FCCBs are foreign currency-denominated bonds with maturity periods of between three and five years. The investor has the option of converting the bonds into equity. If the stock is trading at or above the conversion price, he can sell them and book profits. Otherwise, he would hold them till maturity and opt for redemption at the price agreed. Either way, the bond holder's investment is protected.

The cash crisis has been brewing at Suzlon for some time, and the company did take a few measures to ease the situation - like sale of some of its non-core assets and pushing for recovering receivables. In June this year, it sold its manufacturing subsidiary in China for Rs 340 crore, but the cash is yet to come in. Its efforts at recovering $208 million (Rs 1,081 crore) from a customer, the US-based Edison Mission, have come to naught with the latter refusing payment, saying the turbines supplied were faulty. Suzlon has filed a suit to recover the dues.

Suzlon, the world's fifth largest turbine maker by capacity installed, has posted losses each of the last three financial years. Its net debt stood at Rs 13,000 crore end-June 2012.

In the past 12 months, shares of the company have dropped from a high of Rs 39.10 (October 31, 2011) to a low of Rs 15.90 (October 12, 2012) on the National Stock Exchange. Its market capitalisation stands at Rs 2,826 crore.

In 2011/12, the company posted revenues of Rs 21,082 crore, and reported improved pre-tax (EBIT) margins of 5.5 per cent (versus 2.2 per cent in the previous year). Recognising the need to tame expenses, the company, in August this year, announced initiatives to cut its annual operating and manpower costs by 20 per cent by end-March 2013.

On the positive, the total debt of Suzlon has seen a significant decline of 47.8 per cent since March 2009, according to Business Today Research Bureau. Also, unlike some other wind turbine manufacturers, Suzlon has had no problems with its order book position - it had orders worth $7.2 billion (Rs 37,400 crore) as of the end of June 2012. Its German subsidiary REpower itself accounted for orders of $5.1 billion (Rs 26,500 crore). REpower is debt-free and has cash reserves, but Suzlon has been unable to repatriate them to the group yet over some legal hurdles.

The options before Tanti are not many. He needs fresh cash - from equity investors, from lenders or from his assets sold - desperately to bail his baby out of the crisis.

*This story has been updated to include the change in Suzlon's working capital, the nature of its loans and the company's debt figures.