Friday, October 24, 2008

Suzlon's Shares Drop After Turbine-Tower Accident

Shares of India's Suzlon Energy Ltd., the world's fifth-largest maker of wind turbines, crashed 39% on Friday after a report that a 140-foot-long blade had shorn off a turbine tower at a project financed by Deere & Co. in the U.S. Midwest.

The accident is the latest and most serious in a series of blade splitting and other technical problems in the U.S. and India which have hurt Suzlon's image. The share-price decline Friday also reflected investor concerns that Suzlon will be unable to raise the money it needs in coming months to fund an ambitious global expansion plan, and may be forced to sell assets, analysts said.

In a statement, Suzlon said the incident in the U.S. was "extremely rare and unusual." The company added: "Other turbines owned by that customer and our other customers at various locations in the U.S. are operating without interruption." It gave no further details.

A report Thursday in the Peoria Journal Star, an Illinois.-based newspaper, quoted Richard Shertz, a farmer from near Wyanet, Ill., as saying he heard a noise like thunder Wednesday morning and later found the huge blade lying in one of his cornfields, 150 feet away from the turbine's tower. A photo accompanying the article shows the Suzlon turbine tower with a stump near the central hub where one of the blades should have been attached.

Stewardship Energy LLC, an Illinois.-based wind farm developer, began operating four 2.1 megawatt Suzlon turbines on Mr. Shertz's farmland in mid-2007. The project was financed by John Deere Wind Energy, a unit of Deere & Co., according to Stewardship Energy's Web site. A spokesman for Deere couldn't be immediately reached.

Two other turbines, which sit atop 80-meter towers, were turned off after the accident, local media reported. A fourth turbine, reports said, hasn't worked all summer because of cracks on its blades.

Earlier this year, Suzlon said it was recalling 1,251 blades, or almost the entire number it has sold to date in the U.S. after cracks were found on over 60 blades on turbines run by Deere and Edison International's Edison Mission Energy.

Suzlon acknowledged the blades were too thin near the point where they attach to the turbine's tower to deal with strong gusts. The company, which is based in Pune, India, planned to replace blades that had split and add an extra layer of lamination to the remainder. It is unclear whether any other blades have come off completely.

Suzlon's share drop weighed on an Indian market already buffeted by concerns over the credit crisis and the Indian central bank's decision not to cut interest rates. Suzlon's shares closed 39% lower at 47.25 rupees. The benchmark Sensex index on the Bombay Stock Exchange closed 11% lower at 8701.07 points, its lowest level since November 2005. Suzlon's shares have now lost 88% since the start of the year; the Sensex is down 57% in the same period.

Investors are increasingly worried about the fact that Suzlon plans to raise $380 million by mid-December to complete its $1.7 billion takeover of REpower Systems AG, a German wind turbine producer, analysts said. Suzlon had lined up euro-denominated bank loans for the purchase before the credit crisis, but late last month said it was instead planning a rights issue to raise the cash, sparking a major fall in its share price.

Suzlon already has a majority stake in REpower but, under strict German corporate laws, needs to acquire one more large block of shares and offer to buy out minority shareholders before it can transfer technology out of the German company. Suzlon needs access to REpower's cutting-edge technology, including blueprints for blade designs, to overcome its current technology problems, say people who know the two companies. Suzlon has said the REpower takeover was driven by a desire to penetrate the European market and get access to large offshore wind turbines, not for other technology.

The market is now nervous that Suzlon may have to sell stakes in other units like Belgian gearbox maker Hansen Transmissions International NV, says one analyst who covers Suzlon. Both shares in REpower and Hansen have also fallen sharply since Suzlon announced its rights issue.

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