Strategic players eye two of GMR's coal-based projects

Investment bankers in know said strategic players were keen to acquire Emco, in which GMR had made an equity investment of about Rs 1,000 cr

Strategic players, as well as global private equity funds, are understood to be keen on acquiring significant stakes in two of GMR Infrastructure"s coal-fired projects -- Emco in Maharashtra (generating 600 Mw) and Kamalanga in Odisha (1,050 Mw).

Investment bankers in the know said strategic players were keen to acquire Emco, in which GMR had made an equity investment of about Rs 1,000 crore, and the transaction was expected to be closed within two months.

GMR had acquired this asset in 2009. "The negotiations have been broad-based and the investors are now understood to be keen on the Kamalanga project, too. As we understand, GMR is looking at equity returns of 1.3-1.6 times on the Emco project and if Kamalanga is also included, GMR is expected to settle at 1.4 times its equity investment," a senior investment banker told Business Standard.

The banker further indicated the final contours of the transaction, in terms of whether GMR wanted to exit fully or offload part of the stakes, were being threaded. He added this would depend on the investors" offer. If the talks fructify, GMR is expected to get Rs 3,000 crore from these two projects.

The two power projects, commissioned in various stages through the past 12 months, have generated revenue of Rs 575 crore for the nine months ended December 2013.

Declining to comment specifically on the two power projects, Madhu Terdal, group chief financial officer, GMR Infrastructure, told Business Standard the group had an asset-light, asset-right strategy and offers for assets would be looked into. The company, which made news when it bagged the modernisation project of the Delhi airport, has been saddled with overall debt of about Rs 41,000 crore, with leverage of 3.5 times, following aggressive expansion. As part of measures to come out of the uncomfortable gearing, GMR had, in January this year, spelt out an "asset-light, asset-right" strategy.

As part of this strategy, GMR Infrastructure offloaded a global power project in Singapore, an airport at Istanbul and a couple of highway projects in India. So far, these have generated about Rs 4,000 crore of free cash into its balance sheet, besides reducing project debt by about Rs 10,000; future divestments will be used to reduce corporate debt.

While the group"s airports vertical has been recording profits, the power segment has been hit severely, as two of its gas-fired projects in Andhra Pradesh have been without a constant supply of gas and this has taken a toll on the company"s balance sheet. For the nine months ended December 2013, GMR Energy recorded a loss of about Rs 1,000 crore on revenue of Rs 2,300 crore. GMR Energy has capacity of 2,136 Mw in operation and 5,043 Mw under implementation, across coal, solar, hydel and gas fuels.

GMR, as part of its strategy to unlock potential in the power arm, had planned to go public and raise Rs 1,400 crore. But on Monday, it withdrew the offer, stating the objects of the offer were changing.

On Tuesday, the GMR stock lost 3.6 per cent, closing at Rs 25.4 on the National Stock Exchange.

Emco:

* Fuel supply agreements signed for entire capacity of 600 Mw

* Unit-II went live on September 1, 2013

* Achieved a PLF of ~38% in the quarter ended December 2013

* 64% of the coal has been sourced through domestic linkage this quarter

* PPA signed with TNEB for 150 Mw

Kamalanga

* FSA signed for entire capacity of 1,050 MW

* Unit-I started on April 30, 2013

* Unit-II started on November 11, 2013

* Unit-III started on March 25, 2013

* Achieved a PLF of ~39% in the quarter ended December 2013

* 82% of the coal has been sourced through domestic linkage in the current quarter