Suzlon to buy Chinese wind energy firm

Suzlon Energy Chairman and Managing Director Tulsi R Tanti's vision of making the company the third-largest wind turbine manufacturer in the world is prompting him to march ahead with acquisitions across the globe.

Tanti, who acquired Germany's REpower Systems last year, today announced plans to buy Chinese wind energy company Honiton Energy Holdings. The acquisition will be concluded through Colossus Holdings, a Singapore-based holding company of the Tanti group, and Bahrain-based private equity company Arcapita Bank for over $500 million (Rs 2,162 crore), sources said.

The Tanti Group will own 26 per cent of the Chinese company and the rest will be funded by Arcapita. The partners will spend another $2 billion by 2012 to develop a 1,650 mega watt portfolio of wind farms in the Inner Mongolia region of China.

"The game plan of this investment by using a separate joint venture is to bring in a big PE fund like Arcapita as a partner, and to broad-base operations of Suzlon in markets such as China which it was not able to penetrate much," said Kamlesh Kotak, VP (Research) at Asian Market Securities.

Acquisitions have been major drivers of growth for the Pune-based Suzlon, which was started way back in 1995 by Tanti and his three brothers, who could not find much success with their traditional textile business in Surat. Last year, Suzlon outbid French energy major Areva to acquire 33.6 per cent stake in German turbine maker REpower for $698 million.

Recently, the company further acquired Areva's stake in REpower.

Suzlon, now operating in over 20 countries with global headquarters in Amsterdam, drew international attention with the acquisition of Belgian gearbox manufacturer Hansen Transmission for $565 million in March 2006.

Mounting climatic concerns leading to the need for wind and other green energy solutions attracted Tanti and his brothers to look at wind turbine manufacturing opportunities.

Tanti set up their global quality manufacturing facilities mainly at Puducherry and catered to the global markets using the country's cheap labour advantage.

For Tanti, who ventured into wind power business about 13 years ago, China is not a new terrain. Suzlon already has over 200 mega watt of orders from the Chinese market with 7 per cent market share, mainly in the Mangolia region and in 2007, it had installed over 220 mega watt wind mills in China.

At Tianjin near Beijing, Suzlon has already set up a manufacturing facility with $60 million investment to make 600 mega watt of wind turbines annually.

Tulsi Tanti and his family, directly and indirectly, owns 66 per cent of the Rs 13,670 crore turnover Suzlon Energy, the wsorld's fifth leading suppliers of wind turbines with 10.5 per cent of the global market share.

China is an opportunity for growth for Suzlon, which is facing backlashes in the US, one of its main markets. 

Blades of about 65 turbines cracked at some of the installation sites in the US and Suzlon had to carry out a Rs 100 crore blade retrofit programme to resolve the issue. A few days ago, reports said some of the turbines supplied in the US were not producing adequate power due to technical problems and inability to adapt to the US power grid.

In this situation, China is an emerging wind power opportunity for Suzlon with installations of 6,000 MW by 2007. China is the second leading wind energy market behind the United States, comprising nearly 17 per cent of
the global market. The market is expected to add new installations of 36,500 MW between 2008 and 2012.

Honiton, established in 2005 to develop and operate wind power generation facilities within China, and to date, has 50 MW of installed capacity, and a further 100 MW in development. It also has agreements to develop wind farms on five separate areas in China, representing a total of 2,244 square kilometres to develop 1,650 MW by 2012. Total installed wind energy capacity in China at the end of 2007 was 6,000 MW.

Honiton, a 100 per cent foreign owned company with base in London, was established in 2005 to develop and operate wind power generation facilities within China.

So far, it has 50 MW of installed capacity, and another 100 MW is under development. In addition, the company has worked closely with the regional and state authorities in China, and has secured agreements to develop wind farms on five separate areas in China, representing a total of 2,244 square kilometres, on which it plans to develop its total capacity to reach 1,650 MW by 2012.

Suzlon spokesperson declined to comment on the acquisition saying "It is a private investment of the Tanti Group''.

In order to cater to a strong order book of over Rs 18,000 crore (Rs 180 billion), Tanti is in the process of expanding manufacturing capabilities in India with an investment of Rs 1500 crore (Rs 15 billion), besides Rs 900 crore (Rs 9 billion) expansion at the Belgium unit.