Suzlon Energy plans to retire debt of Rs 583.5 crore and save on interest payments by using a part of the Rs 1,200 crore to be raised from the rights issue of the renewable energy solutions firm.

The company has proposed a rights issue of 240 crore shares at an issue price of Rs 5 per share and an entitlement ratio of 5:21 (5 rights equity shares for every 21 fully paid-up equity shares).

A total of Rs 900 crore from the rights issue, which opened on Tuesday, would be utilised for debt repayment.

Of this, Rs 583.50 crore is at the application of the issue and Rs 316.50 crore is through subsequent calls.

The company’s total outstanding borrowings as of June was Rs 3,272 crore, down from Rs 6,391 crore as of March.

“If you see our Q1 filing, debt was approximately Rs 3,200 crore, and assuming a full subscription of the rights issue, we would be able to pay immediately Rs 583.5 crore to our lenders,” said Himanshu Mody, group CFO of Suzlon Energy.

The reduction in debt could immediately lead to saving on interest payments with the company incurring an interest rate of around 9.5 per cent per annum on its outstanding borrowings.

“As a result of the rights issue, there will not be any dilution in promoter holding because the promoters have confirmed their participation to the extent of the holding,” Mody said.

The promoter group, which includes members of the Tanti family, holds 14.5 per cent of Suzlon Energy.

Founder of Sun Pharmaceuticals Dilip Sanghvi and associates had invested Rs 1,800 crore in Suzlon in 2015 to help the company return to profitability.

He had also recently indicated his participation in the rights issue.

“After the rights issue we will have a much healthier and leaner balance sheet and the operating cash flow of the company will be more than sufficient to be able to service the debt,” Mody said.