GMR sells 30% stake in GMR Energy for $300 mn to Tenaga Nasional4 min read . Updated: 13 May 2016, 07:44 PM IST
Move will lead to a reduction in GMR Infrastructure consolidated corporate debt and result in a stronger balancesheet
Mumbai: Malaysia’s largest electricity utility Tenaga Nasional Bhd. will buy a 30% stake in a “select portfolio" of GMR Energy Ltd assets for $300 million (around ₹ 2,000 crore), the Indian company’s parent GMR Infrastructure Ltd said on Monday.
The deal will help GMR Energy strengthen its balance sheet by lowering debt.
GMR Infrastructure, which has interests in airports, energy, transportation and urban infrastructure, is monetizing assets to repay creditors after years of debt-driven expansion.
Creditors who have supported debt-heavy infrastructure conglomerates are under regulatory pressure to rid their books of bad loans. The pressure is being transmitted to corporate entities that are finally starting to sell assets to repay debt.
In the case of GMR Energy, the proceeds from the deal with Tenaga will go entirely towards repaying debt.
GMR Energy’s corporate debt will be lowered by ₹ 2,000 crore to ₹ 750 crore, GMR Infrastructure’s chief financial officer Madhu Terdal said on a conference call.
The deal will help GMR save ₹ 200-250 crore per year in interest costs, Terdal said.
Terdal, in referring to corporate debt, was excluding the debt on the books of individual projects at the special purpose vehicle level.
Most analysts don’t look at debt that way and prefer to look at consolidated debt while assessing the balance sheet of an infrastructure firm.
As of 30 September, GMR Infrastructure had total consolidated debt of ₹ 43,439.60 crore.
In September 2015, rating company Icra Ltd downgraded some of GMR Energy’s loans and debt securities to ‘D’ or default grade, citing delays in interest payments.
“The rating revision is on account of recent delays in debt servicing by GMR Energy due to continued deterioration in its liquidity position," Icra aid.
Some of GMR Energy’s gas-based power plants had not been operational in fiscal 2014 and fiscal 2015 due to non-availability of gas, it said.
GMR Energy has power capacity of over 4,600 megawatts (MW) across coal, gas and renewable energy-based projects. About half of the capacity is operational and another 2,300MW is under development in India and Nepal.
Tenaga Nasional will hold an equity stake in some of these assets with an option to invest in the company’s other assets, including those in Chhattisgarh and Indonesia, over time, GMR Group corporate chairman Kiran Kumar Grandhi said on a conference call on Monday.
GMR Energy expects to benefit from Tenaga Nasional’s experience in improving the performance of its operational assets and develop its pipeline of hydro-power and renewable energy assets, the company said.
Tenaga Nasional, one of the largest power companies in Southeast Asia, has a presence across the power generation, transmission and distribution segments. It has a total installed power capacity of 10,818MW and controls 50% of the Malaysian grid’s generation capacity.
The environment for mergers and acquisitions in the power sector has improved, said Maybank Kim Eng Securities analyst Anubhav Gupta.
Gupta cited the government’s recent decision to amend the Mines and Minerals (Development & Regulation) Act (MMDR Act) to include provisions allowing transfer of captive mines.
“Large companies are still distressed and openly putting their power plants on the block," said Gupta.
Parliament has approved amendments to the legislation, which only needs the President’s signature to become law.
GMR Infrastructure has taken other measures to strengthen its balance sheet.
In March, it agreed to sell a 51% stake in a 99km highway project in Karnataka to its joint venture partners in a deal that earned it ₹ 85 crore and took ₹ 1,077.94 crore debt associated with the project off its books.
In December, GMR raised $300 million by issuing 60-year foreign currency convertible bonds to Kuwait Investment Authority (KIA).
While the funds raised from KIA were in the form of debt, the convertible nature of the instrument and its long tenor gave the company greater flexibility in debt repayments.
In 2013, GMR sold a 40% stake in Istanbul’s Sabiha Gökcen International Airport for about €225 million to Malaysia Airports Holdings Bhd. It also sold a 70% stake in a Singapore power unit for $600 million.
Over the last three years, it has also divested some highway projects.
Transactions intended to reduce debt through sale of assets have picked up in recent months.
Last week, Jindal Steel and Power Ltd (JSPL) decided to sell a 1,000 megawatt (MW) power plant to chairman Naveen Jindal’s older brother Sajjan Jindal’s JSW Energy Ltd. The deal was struck at an enterprise value of ₹ 4,000 crore, which could increase to ₹ 6,500 crore if JSPL manages to secure 100% fuel supply for the plant and enters into long-term power purchase agreements.
Jaypee group agreed to sell most of its cement assets to UltraTech Cement Ltd for ₹ 15,900 crore on 31 March.
On 29 March, GVK Power and Infrastructure Ltd agreed to sell a 33% stake in Bangalore International Airport Ltd for ₹ 2,149 crore to India-born Canadian billionaire Prem Watsa’s Fairfax India Holdings Corp. and Fairfax Financial Holdings Ltd.
On 5 February, Reliance Infrastructure Ltd sold its 5.6 million tonne per annum cement assets to Kolkata-based Birla Corp. Ltd for a consideration of ₹ 4,800 crore.
“Larger conglomerates are looking to reduce their debt by both improving overall performance as well as by sale (of assets)," said Vishwas Udgirkar, senior director at consulting firm Deloitte Touche Tohmatsu India Pvt. Ltd. “Monetization is never a simple and straight-forward process," he said, noting the challenge faced by buyers and sellers in agreeing on valuations and the risk inherent in such transactions.