Mumbai: GMR Group, which has interests in urban infrastructure, airports and energy, plans to create individual holding companies for its three primary businesses and list them overseas on bourses such as the New York Stock Exchange, or NYSE, a top company executive said.
The group may also create a holding company for the parent firm, GMR Infrastructure Ltd, and list it overseas. Holding companies are non-operating firms that own stakes in operating entities to unlock value.
“Eventually, we will look at this holding company model, though the broad contours of this concept have not yet been drawn,” said Madhu Terdal, chief financial officer, international operations, GMR Group.
The group has already set up an office in London as a preliminary step and has plans to start regional offices across the globe as it buys power plants in the US, builds an airport in Istanbul, and mines coal in South Africa. The group, owned by the 55-year-old Grandhi Mallikarjuna Rao, plans to earn nearly 40% of its income from international business.
The company plans to invest $10 billion (Rs42,880 crore) in the next five years to acquire overseas assets, Bloomberg reported last week.
On Wednesday, the GMR Goup, which started as a jute trading company in Andhra Pradesh’s Rajam town, acquired 50% of Intergen NV, a Dutch power company, for $1.1 billion.
“We feel there are more such opportunities overseas than in India, where there are constraints to grow organically,” said Terdal.
The GMR Group has 23 subsidiaries in businesses such as energy, highways and airports, apart from two listed entities, GMR Infrastructure and GMR Industries Ltd.
Sidharth Punshi, managing director of investment bank Jefferies India Pvt. Ltd, said for companies that have a decent size and scale, listing of their holding companies abroad is an opportunity.
But promoters should have the will to sell a substantial stake to attract investors, he said. It is also a challenge for companies that are managed out of India because investors prefer companies to be based in the place of listing, he said.
“Indian companies can obtain several benefits by incorporating holding companies abroad, such as an international customer base, world-class technical upgradation, operational convenience, and to secure a multinational image,” said Akil Hirani, managing partner at Mumbai law firm Majmudar and Co.
They can also raise money abroad by inverting the investment structure and having an overseas holding company, which, in turn, can be listed on a foreign exchange, such as Aerens Gold Souk International Ltd, a Delhi-based real estate developer.
A company is regarded as a holding company if it holds 51% of the equity share capital of the subsidiary, exercises substantial voting power in it, and has control over the subsidiary’s board of directors.
Companies also create intermediate holding companies between the main parent company and subsidiaries as a conduit for consolidating multiple investments, Hirani said.
Fuelled by global aspirations, GMR Group says on its website that it wants to grow like Macquarie Group of Australia, Spain’s Grupo Ferrovial SA and China Merchant Holdings International Co. Ltd of Hong Kong. All three primarily focus on infrastructure projects.
Last year, Macquarie Bank Ltd decided to float a non-operating holding company to list on the Australian Stock Exchange.
“Holding companies are very popular in the US and Europe. Foreign investors are keen to buy shares of holding companies that have an Indian flavour, banking on assured annual returns from infrastructure projects in India,” said an investment banker who helped structure the three-way acquisition of Idea-Spice and Telekom Malaysia. He didn’t want to be named as he is not authorized to speak with the media.
However, unlike Rao’s peers such as Anil Agarwal, chairman of Vedanta Resources Plc., GMR Group wants to build critical assets in operating companies and then create a non-operating holding company to list it abroad.
Agarwal pioneered the listing of holding companies abroad by taking Vedanta to the London Stock Exchange and raising $1 billion in 2003.
S. Manikkan, India managing director at Babcock and Brown Ltd, one of Australia’s largest infrastructure companies, said investors looked for steady, stable and continuous cash flows from projects such as power that are “recession-proof”.
GMR raised $1.1 billion by selling a stake to institutional investors last year.
“When an economy is slowing down, investors’ appetite will shift to annuity business from cyclical business,” said V.R. Sirinivasan, chief executive of Bric Securities Ltd, a domestic brokerage that advises high net-worth individuals. “Funds that have invested in GMR’s $1.1 billion issue to qualified institutional investors are primarily looking at long-term returns,” he added.
GMR is executing power projects through its 100% subsidiary GMR Energy, which is an operations-cum-holding company for GMR Infrastructure, said a Mumbai-based analyst, who didn’t want to be identified.
This model has three levels —an operational company, a sectorial holding company and the parent company, offering a great opportunity to unlock value for investors, the analyst said.
“The promoters can dilute the stake of any of the three levels of companies in international and domestic markets,” he said.
GMR Group is also modernizing the international airport at New Delhi and building two special economic zones near its Hyderabad airport. “We have made our entry into international operations by winning the bid to develop the Sabiha Gokcen International Airport in Istanbul, Turkey, along with our international partners,” Terdal said. “We are looking at airport development opportunities in Prague.”
As of 31 May, GMR Infrastructure and its subsidiaries had debt of Rs7,959 crore on their books, said Subba Rao Amarthaluru, chief financial officer, corporate integration, GMR Group.
“GMR has not faced any difficulty in raising funds as there is smooth cash flow in its businesses,” he said.