Mumbai/New Delhi: Infrastructure conglomerate GMR Group has initiated discussions with SembCorp Industries Ltd of Singapore and US-based Lone Star Funds for selling a significant stake in GMR Chhattisgarh Energy Ltd (GCEL), a 100% subsidiary of GMR Energy Ltd (GEL), three people familiar with the matter said. The move is part of the group’s efforts to bring down its debt that stood at Rs43,400 crore at the end of September.
GCEL has two power plants with combined capacity of 1370 MW at Raipur, Chhattisgarh, that commenced commercial operations in March.
“While SembCorp has been in talks with GMR for a while now, the discussion with Lone Star Funds is a new development and is exploratory in nature,” said one of the three people—a senior GMR Group executive who did not want to identified.
The second person, a banker, said SembCorp is keen to pick up stake in the project. He added that the absence of long-term power purchase agreements (PPAs) is a hurdle. These make the transaction viable given significant cost over-runs in the project.
Currently, GCEL has only short-term PPAs. It is hoping to sign long-term PPAs with state-owned utilities in Uttar Pradesh and Telangana. It has already bid for such agreements in the case of the former.
According to its most recent filings, GCEL has an overall debt of Rs8,290 crore and needs to start paying back money from March 2017. The three people said its enterprise value (EV) is close to Rs12,500 crore and includes two captive coal mines valued at Rs750 crore.
“During the normal course of business, We talk to various parties for different transactions. we would not like to comment on any specific transaction,” said a GMR Infra spokesperson.
Analysts say that GCEL will have to sign PPAs in the range of Rs3.80 per unit to make the project viable. A slightly lower tariff could be sustainable but only if banks agree on a moratorium and a possible restructuring.
“We are talking to banks; everyone understands that the current situation helps no one,” said the GMR executive.
“India is one of SembCorp’s key markets and an integral part of the company’s emerging markets strategy. We’re constantly on the lookout for suitable opportunities to grow our business in India especially in the areas of thermal power, renewable power, water treatment and urban development. However, we do not comment on specific opportunities,” a SembCorp spokesperson said. A spokesperson for Lone Star Funds declined comment.
The GMR Group, which has interests in airports, energy, transportation and urban infrastructure, is monetizing assets to repay creditors after years of debt-driven expansion.
In May, it sold a 30% stake in some of GMR Energy Ltd’s assets for $300 million (around Rs2,000 crore) to Malaysia’s largest electricity utility Tenaga Nasional Bhd. In July, it sold 74% stake in Maru Transmission Services Ltd and 49% in Aravali Transmission Services Ltd to Adani Transmission Ltd for Rs 100 crore.
Both SembCorp and Lone Star Funds were among the shortlisted bidders for SunEdison’s India assets which were acquired by Hyderabad-based Greenko Energy for $392 million.
The Singapore-based SembCorp Green Infra, a subsidiary of SembCorp Industries, has over 900 MW of wind and solar power assets in operation and under-development in southern, western and central India.
Last year, it acquired a controlling stake in Green Infra from IDFC Alternatives for Rs1,060 crore, marking its entry into India’s renewable energy market.
According to credit rating agency Crisil, India’s power generation capacity has grown at a compound average growth rate (CAGR) of 10% since 2009. Of this, the private sector contributed the most—close to 60% of the coal-based capacity—and invested Rs3.2 trillion.
Despite the growth in capacity, the demand for power from distribution utilities (power discoms) has grown barely at 0.4% during this period. At least 15% of capacities added by private firms are without long term PPAs, affecting their ability to service debt.