New Delhi / Mumbai: The GMR Group said on Sunday it proposes to sell its 50% stake in Massachusetts, US-based InterGen N.V. to Chinese power utility Huaneng Group for $1.23 billion (Rs5,621 crore) to reduce debt and free up money for investment.
“The sale to Huaneng Group will release $235 million cash flow into the system for investments in Indian projects. It also de-leverages the balance sheet by more than $1 billion,” said A. Subba Rao, group chief financial officer (CFO) of the Indian infrastructure firm.
The deal was reported on Sunday by The Economic Times and the Sunday Business Standard.
GMR had paid $1.13 billion to purchase the stake in InterGen in October 2008 in a leveraged buyout from AIG Highstar—the largest acquisition of an overseas utility by an Indian firm. It also paid $120 million to service the debt. In return it received a dividend of $32 million. “At that time, the right large opportunities were not present in the Indian power sector and hence the move overseas,” said Subba Rao, adding that the group will now focus on the domestic power sector. InterGen has an operational capacity of 8,146MW with plants located in the Netherlands, Mexico, the Philippines and Australia.
Huaneng, China’s largest power generation utility, has a capacity of 108,530MW. It had earlier pipped GMR to acquire Temasek Holdings Pte Ltd’s Singapore power generation company, Tuas Power Ltd.
“The transaction is subject to customary regulatory approvals in each of the jurisdictions where InterGen has operations, as well as approval of the government of the People’s Republic of China. The transaction is expected to close in the first half of 2011,” GMR said in a statement.
“The decision to divest our 50% stake in InterGen is in line with the strategy to focus more on Indian market,” G.M. Rao, group chairman, GMR Group, said in the statement.
Bloomberg reported that Huaneng is also considering buying the remaining stake in InterGen from Ontario Teachers’ Pension Plan, but no agreement has been reached.
Bank of America Merrill Lynch, and White and Case Llp are the financial and legal adviserrs to GMR on the transaction.
“When we ran QIP (qualified institutional placement) for them earlier this year, investors wanted GMR to be a purely India infrastructure play. The management heeded this. I think it’s a good time for them to get out and not hang on,” said Saurabh Agarwal, head of investment banking, DSP Merrill Lynch.
GMR has 14 power projects totalling 9,296MW. Of these, three are operational (808 MW).
“There is an equity requirement for their project. InterGen didn’t contribute much cash in operational terms and it makes sense to consolidate and concentrate on investments in India,” said Shubhranshu Patnaik, senior director, energy and resources, Deloitte India.
India has a power generation capacity of 167,000MW and had plans to add 78,577MW by 2012, investing Rs10.31 trillion. The funding ability of Indian institutions is restricted by central bank limits on how much they can lend to each sector or business group.
Ravi Krishnan in Mumbai contributed to this story.