GMR drops SA firm takeover move

Company in talks to sell 10% stake it bought earlier.

Bangalore-based GMR Infrastructure has backed out of its $155-million acquisition of 50 per cent stake in Homeland Mining & Energy, a coal mining firm in South Africa. The declining coal prices and the findings in the due diligence have forced the company to withdraw the offer, A Subba Rao, group CFO of GMR Infrastructure told Business Standard.

“The company has already bought 10 per cent stake in Homeland for $30 million. As part of exiting from the mining company, we will sell off the stake already acquired. The company is now evaluating the exiting options to get the investment back,” said Rao.

GMR has initially renegotiated with Homeland for a price reduction, but later decided to back out. Recently, the company had renegotiated the acquisition price for the Netherlands-based Intergen by $162 million, from $1.1 billion to $954 million, after the global credit crunch and resultant rise in interest rates.

In April this year, GMR Energy had picked up 5 per cent stake for Rs 60 crore ($15 million) in Homeland, a subsidiary of Homeland Energy Group of Canada. The company had increased the stake to 10 per cent after some time. During the time of acquisition, GMR reserved its right to increase the stake up to 50 per cent by September 2008 for $155 million.

The transaction was for the projects and properties held within Homeland’s South African subsidiary, which include the Kendal Mine, Eloff coal mining project, the Northfield site reclamation project as well as exploration projects in the country. After the due diligence, the Indian company has not found the assets worthy enough to justify its price, said sources.

The stake acquisition of GMR Energy was for supplying coal to its two greenfield power plants coming up in Orissa and Chhattisgarh, with an aggregate generation capacity of 3,150 megawatt (MW).

The Orissa project is expected to generate power from 2012, while the Chhattisgarh project is likely to start much later. GMR Energy currently has three power plants operational, generating 800 MW, none of which are coal fired.