Suzlon Inter-Creditor Agreement: A Step towards Resolving Debt-Equity Imbalance
Suzlon Energy Limited, one of the leading renewable energy solution providers in India, has been struggling with huge debts for the past few years. The company`s debt-equity ratio has risen to alarming levels, forcing it to explore various options to restructure its debts.
In this context, a crucial development in the company`s debt resolution process was the signing of an Inter-Creditor Agreement (ICA) in June 2019. The ICA was signed by Suzlon Energy and its major lenders, including State Bank of India, Bank of Baroda, and Axis Bank.
What is an Inter-Creditor Agreement?
An ICA is a contractual arrangement among lenders of a borrower, aimed at resolving debt-related issues through consensus-based decision-making. The agreement specifies the roles and responsibilities of each lender, and outlines the framework for resolving issues related to debt restructuring, asset-sale, and other relevant matters.
The key objective of an ICA is to create a unified approach towards debt resolution, which is beneficial for all parties involved. By signing the agreement, lenders agree to work together in a coordinated manner, rather than pursuing individual strategies that may result in conflicting outcomes.
How does the Suzlon ICA work?
The Suzlon ICA is a vital step towards resolving the company`s mounting debts. The agreement provides for a resolution plan that involves converting a part of the company`s debt into equity shares. This move would not only reduce the company`s debt burden but also enhance its equity base, thereby improving its overall financial health.
Under the resolution plan, Suzlon`s outstanding debt of Rs 14,000 crore would be restructured into a sustainable long-term debt of Rs 9,000 crore, and Rs 5,000 crore would be converted into equity shares. The conversion of debt into equity shares would give the lenders an 11% stake in the company, thereby making them shareholders.
The ICA also provides for the appointment of a lead lender to oversee the resolution plan and facilitate coordination among the lenders. The lead lender would be responsible for implementing the resolution plan and ensuring compliance with the terms of the agreement.
What are the benefits of the Suzlon ICA?
The Suzlon ICA is expected to have several benefits for the company and its lenders. Firstly, the conversion of debt into equity shares would reduce the company`s interest burden, thereby improving its financial viability. Secondly, the equity infusion would enable Suzlon to invest in its core business and expand its operations. Thirdly, the ICA would create a coordinated approach among the lenders, ensuring a swift resolution of debt-related issues.
Conclusion
The Suzlon ICA is a significant milestone in the company`s efforts to resolve its debt-equity imbalance. The agreement represents a consensus-based approach towards debt resolution and provides a viable roadmap for the company`s financial revival. The move is expected to have a positive impact not only on Suzlon but also on the renewable energy sector in India, which relies heavily on the company`s innovative solutions.