Proceeds from the proposed sale of Chinese plant may help Suzlon Energy to partly repay its debt commitments. The proposed sale of the unit, valued at $60 million (Rs 340 crore), can help repay about 16 per cent of the $360-million foreign currency convertible bonds due on July 27.

Suzlon Energy had earlier in the month stated that it was in advanced stages of talks to raise $300 million from banks for repayment of the FCCBs. The Chinese unit sale will help the company supplement the bank debt it is about to take.

Entry in China

Suzlon Energy had set up a manufacturing unit with capacity of 900 MW in China in 2006. At that time, it was the only international player in the Chinese market, although players such as Gamesa and GE are now present. The Chinese market was attractive then, as new installations expanded in double digits, pushing China to the top spot in the wind energy market.

The Chinese unit was also a good base to reach out to other East Asian markets such as Korea, Vietnam and Thailand.

But in recent years, the number of wind equipment players increased from 10-12 manufacturers (2005) to about 85 last year.

This resulted in intense competition and also excess supply in the market. This trend is also visible in the Chinese share of Suzlon’s order book.

China accounted for 13 per cent of Suzlon’s order book even a year ago.

This has now dwindled to just three per cent in FY12. While details of revenue from China are not available, volumes sold dwindled from 201 MW in FY11 to 64 MW. That’s just four per cent of total volume sold in FY12.

Players like Gamesa are also reported to have stated that the Chinese market is likely to remain difficult. Gamesa did not receive any orders in the first three months of this year.

Considering that the severe competition may not only reduce market share but also profit margins, Suzlon’s decision to sell its unit in China appears to be a good move.

Suzlon has stated that it will realign its Chinese strategy with an asset-light model. That could well be from focussing on the maintenance market.

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