News: 'Suzlon may sell equity to help REpower bid'
(RTR 15/02/2007) Mumbai - Wind turbine maker Suzlon Energy Ltd may sell shares to help fund its $1.3 bn bid for Germany's REpower and other expansion plans, a company source said on Thursday.
The company had said it planned to fund the bid through internal accruals and debt, but analysts said this would raise its debt-equity ratio from 0.7 currently to about 2.2 and that instead it may issue shares to generate funds.
"This could be a possibility as only 30 percent equity is in public hands right now," the source, who did not wish to identified, told Reuters. India's Tanti family holds 70 percent.
"The debt component is much higher than Suzlon's own funds, and it may have to go for an equity dilution," said an official from the company's banking consortium, who did not want to be identified.
A Suzlon spokesman declined comment.
Suzlon and Portugal's largest builder, Mota Engil, offered 126 euros per share for the German wind turbine maker earlier this month, topping an offer of 105 euros a share from France's Areva.
Suzlon, the world's fifth-largest wind turbine maker, has formed a joint venture for the bid with an arm of Mota Engil, Martifer, which owns more than 25 percent of REpower. Analysts say Areva owns 30 percent of REpower.
"Assuming Suzlon puts up 75 percent of the acquisition cost, and if it were to keep its gearing to the existing level of less than 1, this could potentially mean a dilution of 5 to 8 percent over a one-two year period," brokerage Edelweiss said in a client note this week on the possibility of selling shares to raise funds.
Suzlon shares fell 2.8 percent to 1,039.75 rupees in Mumbai on Thursday, while shares in REpower were down 1 percent at 144.60 euros at 1226 GMT in the German market.
"At this point, we see 126 euros a share as fair valuation with regards to synergies with REpower," the company source said.
Market analysts said the offer was high, however, and they were concerned that a takeover battle could push it higher. REpower shares currently fetch a premium over the bid, indicating the market expects a higher eventual price.
"Suzlon's bid at 126 euros a share translates into price earnings (ratio) estimated of 57.3 times in the current financial year ... this is clearly expensive considering the low profitability of the company and is a significant premium to peer group such as Vestas and Gamesa," JP Morgan said in a report.
Denmark's Vestas Wind Systems AS is the world's biggest wind turbine maker, and Spain's Gamesa is the second largest.
Suzlon has said a successful deal would probably boost its market share to nearly 15 percent from 11 percent and would give it access to European markets and advanced technology for offshore and larger turbines.
The company had said it planned to fund the bid through internal accruals and debt, but analysts said this would raise its debt-equity ratio from 0.7 currently to about 2.2 and that instead it may issue shares to generate funds.
"This could be a possibility as only 30 percent equity is in public hands right now," the source, who did not wish to identified, told Reuters. India's Tanti family holds 70 percent.
"The debt component is much higher than Suzlon's own funds, and it may have to go for an equity dilution," said an official from the company's banking consortium, who did not want to be identified.
A Suzlon spokesman declined comment.
Suzlon and Portugal's largest builder, Mota Engil, offered 126 euros per share for the German wind turbine maker earlier this month, topping an offer of 105 euros a share from France's Areva.
Suzlon, the world's fifth-largest wind turbine maker, has formed a joint venture for the bid with an arm of Mota Engil, Martifer, which owns more than 25 percent of REpower. Analysts say Areva owns 30 percent of REpower.
"Assuming Suzlon puts up 75 percent of the acquisition cost, and if it were to keep its gearing to the existing level of less than 1, this could potentially mean a dilution of 5 to 8 percent over a one-two year period," brokerage Edelweiss said in a client note this week on the possibility of selling shares to raise funds.
Suzlon shares fell 2.8 percent to 1,039.75 rupees in Mumbai on Thursday, while shares in REpower were down 1 percent at 144.60 euros at 1226 GMT in the German market.
"At this point, we see 126 euros a share as fair valuation with regards to synergies with REpower," the company source said.
Market analysts said the offer was high, however, and they were concerned that a takeover battle could push it higher. REpower shares currently fetch a premium over the bid, indicating the market expects a higher eventual price.
"Suzlon's bid at 126 euros a share translates into price earnings (ratio) estimated of 57.3 times in the current financial year ... this is clearly expensive considering the low profitability of the company and is a significant premium to peer group such as Vestas and Gamesa," JP Morgan said in a report.
Denmark's Vestas Wind Systems AS is the world's biggest wind turbine maker, and Spain's Gamesa is the second largest.
Suzlon has said a successful deal would probably boost its market share to nearly 15 percent from 11 percent and would give it access to European markets and advanced technology for offshore and larger turbines.
posted by InCar Group Press Room at 16:48
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