Hyderabad: Infrastructure developer GVK Group is confident that it will be able to raise the money required for ambitious expansion plans, including the acquisition of coal mines and gas assets overseas, to secure fuel for electricity plants it’s building.
“Tying up funds is not a problem,” said founder and chairman G.V. Krishna Reddy, 73, who started as a construction contractor and went on to build a group operating power plants and airports, and building roads and highways.“We have already tied up and are tying up funds.”
Bankers and investors provide finance to a company based on its track record and the viability of the project it’s executing, Reddy said in an interview.
“Even when the economy was bad, many of our projects were financially closed and without any problem,” he added. “So fund-raising is not a problem.”
Reddy did not confirm or deny media reports this month that GVK Infrastructure and Power Co. Ltdis in talks with investors to fund the purchase of two Hancock Prospecting Pty Ltdcoal mines in Australia for which it may pay $1.5 billion (Rs6,645 crore) in total.
Citing three people with knowledge of the matter who didn’t want to be named, Bloomberg reported on 5 April that GVK was in talks with investors, including Actis Llp and 3i Group Plc, to fund the purchase of the Hancock mines. The report said the company will invest $6.5 billion in the next eight years to develop the mines and extract coal.
Reddy confirmed that GVK Group, which in the 1990s built India’s first independent power project, is scouting for both coal mines and gas assets abroad to fuel power plants it’s building.
“Our eyes are open. Whatever opportunities come, we will look,” he said, adding that any announcement of an acquisition would be made only after an agreement is signed. “We are looking all over.”
The group, which has 901 megawatts (MW) of generation capacity now, is targeting 10,000MW “under development and generation” by 2013. Securing fuel supplies is vital for developers of power plants, many of which are operating at below generation capacity. GVK’s power plants are running at 80% of capacity.
Rival power producers such as GMR Group, Adani Enterprises Ltd, Lanco Infratech Ltd and Essar Group have secured coal assets abroad.
“Any long-term and committed energy sector player shall need to have such a coal security strategy in place,” said Rakesh Jain, an energy expert at the infrastructure consultancy Feedback Ventures. “Gas availability scenario in the short-term in India has again come under the scanner.”
Private equity investors have a generally positive outlook towards the infrastructure sector in India, Jain added. GVK Group last year raised $274 million for its energy division.
GVK Group has other expansion plans as well. It plans to invest about Rs10,000 crore on a new Mumbai airport terminal and spend Rs1,400 crore at the Bangalore airport, said Reddy. A new terminal for the Bangalore airport may cost between Rs2,000 crore and Rs4,000 crore.
It has also signed agreements to build airports in Bali and Java in Indonesia. Feasibility studies are now under way on the projects, Reddy said. GVK also holds the first right of refusal on the proposed airport in Navi Mumbai for which bids are still to be invited.
“The private (airport) operators have primarily raised capital through equity and domestic debt financing until now,” said Kapil Arora, a partner overseeing the aviation sector at audit and consulting firm Ernst and Young Pvt. Ltd. “Going forward, the challenge for private sector operators would be to secure financing for future projects. Investors seek transparency, clarity and consistency in government policy and regulation, which is somewhat uncertain. Under these circumstances, raising capital would be a challenge.”
GVK also plans to expand its road network to 1,000km from 90.3km.
Reddy was in the family construction business when the entrepreneurial urge seized him. His first venture was a particle board unit, set up in 1979. That was the only business for which a licence was then available.
“I wanted to get into a business with some status and respect,” he said. “There was not much status as a contractor.”
In the 1980s, he moved to North Carolina in the US to set up another particle board business, returning to India after the government in 1991 started a liberalization drive and opened up the power sector to private companies.
He secured a commitment of financial support from the World Bank for a power plant, tied up with General Electric Co. for supply of equipment and technology, and operational maintenance support from state-run NTPC Ltd. In 1996, with the 235MW Jegurupadu project in Andhra Pradesh, his company became the first independent power producer in India to start generating electricity, beating Enron Corp. to the landmark.