Wind Turbines, India, and Private Equity

Last summer, Suzlon Energy Limited had a nasty problem with its wind turbine blades. Blades shipped to the US started cracking. Then blades sold in the company’s home country, India, also started cracking. The WSJ noted that one customer said, "The machines are not fit to handle the wind." That stings.

Now, according to Reuters,Mumbai-traded Suzlon wants to raise $500 million, more than half ofwhich the company plans to use to complete the purchase of a majoritystake in a German wind turbine maker REPower. But Suzlon can’t get itsfinancing in order, and REPower’s price target was cut in half lastweek by HSBC (NYSE:HBC). The HSBC analyst noted the stock performancedoes not depend on fundamental data but on the potentially completetakeover by Suzlon. But there are no transaction guarantees due tofinancial limitations at Suzlon, and any deal failure would raiseconcern. Ahem.

Two US private equity firms, The Carlyle Group and TPG Capital, arereportedly looking at investing in Suzlon. Neither commented on thereports. Suzlon is also considering offering debt or selling off someassets.

Suzlon appears to be capable of bringing down itself and REPower. Itdoesn’t make much sense for either Carlyle or TPG Capital to join theparade.

Paul Ausick
December 23, 2008