India: Can India Inc make interest payments on its dollar debt?

July 31, 2016

By Jason Overdorf

Wind turbine maker Suzlon Energy's announcement that it may not be able to repay foreign currency bonds worth some $200 million has again raised questions about the financial health of debt-laden Indian companies, following the dramatic depreciation of the rupee this year.

According to the Hindustan Times, Indian firms racked up a big tab prior to the 2008 financial crisis, when US lenders had money to burn. But now they're being forced to pay the piper, even as business slows down around the world and the drooping rupee makes their interest payments look steeper than ever.

"The ability of companies to repay debt – in other words the financial health of our companies – will be further tested in the coming three months when bonds to the tune of $1.3 billion come up for redemption," the paper said.

What's at stake?

According to a Fitch report released early this year, out of 59 companies whose foreign currency bonds come up for redemption in 2012, about 12 may default, the paper said. Meanwhile, the market for additional bonds has pretty much dried up — plunging from around $7 billion in bonds in 2007 to a measly $800 million in 2011. That number is likely to drop by half this year, the Hindustan Times said.

For Suzlon founder-CEO Tulsi Tanti, matters are particularly dire, however, according to the Economic Times. The company failed to pay a $200 million tab on Thursday, but that's only a drop in the bucket. Its total debt ranges around $2.8 billion, the newspaper reports, which amounts to almost twice its equity base. Meanwhile, it's reported losses for the past three years.

The upshot: Tanti, who built Suzlon into the world's fifth largest wind turbine maker from scratch, could well lose control of the company, the paper said.

Emboldened by a previous case in which India's court system upheld a suit by bondholders that forced generic drugmaker Wockhardt into liquidation to repay its lenders, Suzlon bondholders may well file a similar petition to put pressure on Tanti.