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In the celebrated case of Salomon vs Salomon & Co, Salomon the promoter and owner of 20,001 of the 20,007 shares of the company, sues the company he promoted, to get his dues ahead of other creditors. (He won.) Over a century after that landmark British judgment, something similar is being played out.
$231-m misappropriation Terraform Global, a company promoted by SunEdison, whose board is appointed by SunEdison, has sued the parent company for “misappropriation of funds,” of $231 million.
Terraform Global is a ‘YieldCo’, constructed on the lines of ‘real estate investment trusts’. Its purpose is to raise funds independently and with those funds buy solar projects developed by its ‘sponsor’, SunEdison.
Terraform Global’s contention is that it gave SunEdison money, but the parent failed to transfer the assets. Hence, “misappropriation.”
Technically, the directors of Terraform Global have acted in the upkeep of their fiduciary responsibility. But there is more to it than that.
SunEdison is on the verge of filing for Chapter 11, which is really telling the courts “please tell my creditors not to ask for their dues now.”
Since Terraform Global is also a creditor, it should join the queue along with others, and it may still get none of its dues. If the court decides in favour of Terraform Global, it would suit SunEdison well.
134-MW solar assets But then, keeping the yieldco’s money will also help SunEdison’s India projects. When Terraform Global came out with its IPO last July, it had 134 MW of SunEdison-developed solar assets. Another 626 MW of SunEdison’s solar plants in India was to be purchased by it. The $231 million was a part of the consideration.
SunEdison’s officials do not wish to comment on the developments in the company. However, solar sector analysts put the company’s activities into three categories — operational projects, those for which financial closure has been done and are under construction and those for which the power purchase agreements have been signed but financial closure is yet to be done.
SunEdison has 492 MW of operating projects. These are not affected by the bankruptcy proceedings. Another 350 MW are under construction. The company would need cash for funding its equity. In addition, it has 500 MW in Andhra Pradesh and 150 MW in Jharkhand, in which no work has begun.
Capex worries The company would need cash to fund its equity part of these projects. If the cash is to be divided amongst all creditors, these projects could be affected. If Terraform Global wins the case, at least a good part of these projects will move on.
SunEdison has the option of inviting deep-pocketed partners to buy into these projects. The company has never made a secret of the fact that it is in the business of developing the projects and selling them — a model that is pretty common in the Indian wind industry.
SunEdison’s India head, Pashupathy Gopalan, has often said the company was always in talks with other solar companies to buy into their projects to the extent allowed under the PPAs.
“That is how we operate,” he said in a press conference a few months ago, stressing that it was not as though the company’s selling stake in its SPVs is like “running away.”
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