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Mumbai: GMR Group has offered a clutch of private equity investors a small stake in its flagship company to compensate for a delay in facilitating their exit in one of GMR’s units.

The Bangalore-based infrastructure company said on Friday that Singapore’s state-owned investment firm Temasek Holdings Pte Ltd, and a consortium of investors led by Indian private equity (PE) firm IDFC Alternatives have agreed to restructure their investments in GMR Energy Ltd (GEL). It said GMR Infrastructure Ltd, the flagship company of GMR Group, will give convertible preferred shares (CCPs) worth 788.8 crore to Temasek and CCPs worth 347.8 crore to the IDFC consortium.

In 2010, these two companies had invested a combined 1,395 crore in CCPs in GMR Energy—Temasek with 930 crore and IDFC consortium 465 crore.

The investors have, in turn, restructured their earlier agreement with GMR by subscribing to CCPs in the flagship company GMR Infrastructure for 1,136.6 crore which shall convert to common shares at a price determined on the basis of norms set by the capital markets regulator. The investors were keen to exit GMR Energy through the initial public offering (IPO), which is being delayed because of weak market sentiment.

These investors have agreed to remain invested in GMR Energy over a longer time-span.

“The residual investment of the investors in GMR Energy will continue," GMR Group said in a statement on Friday. After postponing several times, GMR Group had plans to sell GMR Energy shares to the public through an IPO in the second half of current fiscal year.

This latest restructuring of investment in GMR Energy means that the proposed IPO is not likely to hit the market for at least the six months.

Mint could not ascertain the milestones set by these investors and any timeline given to GMR Energy to achieve these milestones.

CCPs have to be converted into ordinary shares at a predetermined date. Private equity investors link the time of conversion to the company’s performance.

“This is one of the rare instance where a company is giving a pound of flesh in its main company to compensate for the losses made by investors in its subsidiary on a mutually agreed terms," said a senior executive from consultancy firm. He requested anonymity. “This may be a small stake (less than 5%) in GMR Infrastructure when they convert into equity 18 months later. But a promoter could have stayed away from not compensating citing economic slowdown," he observed.

When asked about the conversion price of CCPs, a GMR Group spokesperson on Sunday night said that the conversion of CCPs will not happen now at the current prices, but the actual conversion will take place in 18 months from now at the then prevailing price, as per the capital markets regulator’s guidelines.

A second expert, who also requested anonymity, said GMR may be forced to do this deal following pressure by high profile investors, who were impatient about the delay. “And we don’t know what are the milestones set by these private equity firms. However, this will reflect positively on the company and increase the credibility among investors," he added.

Mint could not immediately contact Temasek for a comment.

The investment restructuring will pave the way for value creation at GMR Energy and GMR Infrastructure as the group’s power portfolio has almost reached the peak of its capital expenditure cycle and is getting into the operational phase, GMR Group chairman G.M. Rao said.

“GMR Energy has been our fourth investment with the GMR Group in the past 10 years. This step is a clear demonstration of how the investors and GMR worked together to forge a win-win solution by being considerate of partnership obligations, in a very difficult and challenging external environment for the power sector," said Satish Mandhana, managing partner and chief investment officer at IDFC Alternatives.

GMR Energy has about a dozen companies under its fold, including GMR Power Corp. Ltd, Vemagiri Power Generation Ltd, EMCO Energy Ltd and GMR Kamalanga Energy Ltd.

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