In a worrying development for shareholders of Suzlon Energy Ltd, one of its independent directors, Marc Desaedeleer, resigned from the company's directorship on 8 June 2024, citing dissatisfaction with the corporate governance standards practised by the renewable energy giant.
Mr
Desaedeleer's resignation letter , addressed to Suzlon group chairman Vinod Tanti, painted a picture of a company lacking transparency and openness in its communication practices. "While I am very pleased with the operational and financial performance recorded by Suzlon in the last 18 months, there have been several situations where the corporate governance standards did not meet my expectations, including situations where communications lacked the level of openness and transparency I would have liked to see," Mr Desaedeleer wrote.
The seasoned director revealed that he had previously discussed these issues with the company's management and board members, even sending a note detailing the situations in the hope that the information could be used constructively. However, it appears his concerns were not adequately addressed, prompting his eventual resignation.
The news sent shockwaves through the market, with Suzlon Energy plunging 5% Monday, hitting a low of Rs47.35 on the BSE. Investors and analysts alike were taken aback by the sudden departure of an independent director, citing governance issues within the company.
In an analyst meeting, Suzlon Energy's chief executive officer (CEO) downplayed the concerns raised by Mr Desaedeleer, characterising them as 'soft' and process-oriented issues that would be implemented in due course. The management also reiterated that all legal and financial disclosures have been fully complied with, as per regulations.
Suzlon Energy further clarified that Mr Desaedeleer is not a director in any other Indian-listed entity and that there were no other material reasons for his resignation beyond those stated in his letter. "The company sincerely appreciates the support extended by Mr Desaedeleer to the company during his association with the company," the company said in a note.
As the dust settles on this corporate governance controversy, industry experts and stakeholders will be closely monitoring Suzlon Energy's response to the issues raised by Mr Desaedeleer. The company's ability to address these concerns transparently and effectively will be crucial in restoring investor confidence and upholding its commitment to good governance practices.
It had reported strong financial results for the fourth quarter and FY23-24. The company's net profit for the fourth quarter stood at Rs254.12 crore, despite a 20.6% year-on-year (y-o-y) decline compared to the corresponding quarter of the previous fiscal year. However, the company's revenue from operations witnessed a significant 29% y-o-y increase, reaching Rs2,179.20 crore, up from Rs1,689.91 crore in the fourth quarter of FY22-23. Notably, its operating profit soared by 54% y-o-y to Rs357.2 crore. During the fourth quarter of FY23-24, it also achieved a remarkable milestone by securing its largest-ever order book of 3.3GW (gigawatt).
For FY23-24, Suzlon Energy reported a revenue of Rs6,497 crore and a profit of Rs714 crore, reflecting the company's strong performance and growth trajectory.
One of the significant highlights of Suzlon Energy's financial performance is the substantial reduction in its debt burden. As of 31 March 2024, the company's total debt stood at a manageable Rs150 crore, a significant decrease from Rs1,938 crore in FY22-23. This remarkable debt reduction was achieved through scheduled repayments of the term loan, amounting to Rs1,803 crore in FY23-24. Additionally, an earlier reduction of Rs900 crore was facilitated by a rights issue in October 2022.
Furthermore, Suzlon Energy's net worth turned positive in FY22-23 due to refinancing (gain on derecognition of optionally convertible debentures and compulsorily convertible preference shares) and a rights issue of Rs1,200 crore during the same fiscal year.
On 14 August 2023, the company approved allotting equity shares to qualified institutional buyers, aggregating to approximately Rs2,000 crore. It has subsequently utilised the required amount to repay its entire debt, significantly improving its financial risk profile. Moreover, it does not have any material debt-funded capital expenditure (capex) planned over the medium term. Additionally, it has raised Rs2,500 crore in lines from REC Limited to meet its working capital requirements in the form of a letter of comfort, which enables fronting banks to issue letters of credit and bank guarantees.
While it has experienced defaults and restructuring in the past, with the last restructuring occurring in June 2020, it embarked on a refinancing initiative in May 2022. This process involved replacing the 16-lender consortium with two lenders and extinguishing unsustainable debt through conversion to equity. Although past losses had resulted in a negative net worth until FY21-22, impacting the its financial flexibility with certain lenders, the prepayment of the entire debt has prompted many lenders to approach Suzlon Energy to fund its working capital requirements.
