Suzlon Increases Stake in REpower and Plans to Double Capacity of Operational Wind Power

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Researched by Industrial Info Resources (Sugar Land, Texas)--Suzlon Energy Limited (BSE:532667) (Pune, Maharashtra), India's largest and the world's fifth largest manufacturer of wind turbines, has increased its stake in its subsidiary REpower Systems AG (FRA:RPW) (Hamburg, Germany) from 66% to 73.71% through the payment of the first tranche of $90 million to Martifer SGPS SA (ELI:MAR) (Oliveira de Frades, Portugal) to acquire the latter's stake of 22.48% in REpower. Funds for the transaction were raised through internal accruals and debt.

The acquisition is part of a deal between Suzlon and Areva (EPA:CEI) (Levallois-Perret, France) and Martifer, the two major shareholders of REpower, at the time of its buyout at $1.87 billion two years ago. In February 2007, Suzlon made an initial offer to acquire Martifer's stake in REpower and subsequently outbid Areva in May 2007 to acquire a controlling stake, comprising an equity stake of 33.85% and voting power of 87.1% in the firm. Suzlon also entered into deal with Martifer to acquire the latter's stake of 22.48% in REpower by May 2009 by paying a pre-determined amount of $375 million at an approximate rate of $181 per share.

In June 2008, Suzlon acquired Areva's stake of 30% in REpower for more than $485 million and consolidated its total holding in REpower to nearly 66%. This move was necessitated by a German corporate law that required Suzlon to buy out the minority stakeholders in REpower before it could gain access to the latter's technology blueprints.

In September 2008, Suzlon announced that it was poised to complete the acquisition of Martifer's stake by December 15, 2008. However, Suzlon and Martifer agreed upon a revised payment schedule in December that Suzlon could complete the payment of $375 million to acquire three tranches by paying $90 million in December 2008, $42.5 million in April 2009, and $242.5 million in May 2009. The deal will raise Suzlon's stake in REpower from to 91%.

In October 2008, Suzlon was reported to have cash reserves of $355 million. The firm had earlier announced plans to raise funds of $375 million through a rights issue to support the acquisition, but the plan was later shelved as stock markets spiraled downward in the midst of a global financial turmoil. Suzlon also shelved plans to establish a $140 million tower-manufacturing unit in India, reducing its capital expenditure commitments for the present fiscal year to $195 million.

Suzlon currently has a manufacturing capacity of 2,700 megawatts (MW) per year and is looking to achieve a target capacity of 5,700 MW per year by 2008-09. As of November 2008, the firm had an order backlog of $3.12 billion and was expecting orders to increase from January 2009.

The firm will soon commission a 40-MW wind power project worth $90 million in Nicaragua. The project comprises a network of 19 wind turbines with a power generating capacity of 2.1 MW each set up at the Ometepe Island near Lake Nicaragua. The project is being executed by Suzlon Wind Energy, a European subsidiary of Suzlon, and is being developed by Arctas Capital Group LP (Houston, Texas). The turbines are scheduled to start production in a few weeks.

Suzlon is also looking to foray into the solar power sector in India and has identified sites in Gujarat and Rajasthan to develop plants. The firm estimates that about 10 acres of land would be required to set up a generation capacity of 1 MW of solar power.

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