GMR group banks on new business model
Divests 70% stake in Singapore arm for `2,900 cr, its 2nd such transaction in recent times GMR Energy Singapore is a solid testimony of GMR's...
Divests 70% stake in Singapore arm for `2,900 cr, its 2nd such transaction in recent times GMR Energy Singapore is a solid testimony of GMR's ability to identify a good opportunity, develop and execute a world class power project of high efficiency in a developed country like Singapore. The divestment is the off-shoot of the group's well thought out strategy of an Asset Right - Asset Light and Cash Flow based model that the group has embarked in the recent times Close on the heels of divesting 74 per cent stake in Jadcherla highway project for `206 crore, GMR group which embarked on 'Asset Light- Asset Right' strategy recently to reduce debt burden had achieved another milestone by selling 70 per cent stake in GMR Energy (Singapore) Pte Limited (GMRE) for 660 million Singapore dollars (`2,905 crore). FPM Power Holdings Limited (FPM Power), which is set to pick up the stake, has entered into a share purchase agreement (SPA) with GMR Group on Monday. The deal is estimated to generate a profit of `1,356 crore (S$307 million) for GMR. "This sale translates to an enterprise value (100 per cent basis) for GMRE of US$1,293 million on project completion by end 2013. This divestment of our stake results in a profit of `1,356 crore and releases capital amounting to `1,616 crore," GMR Group said in a statement. The stake sale, which is subject to approval from project finance lenders to GMRE, is expected to close by March end. GMRE was established for the construction, operation and maintenance of a 2X400 MW natural gas fuelled power plant on Jurong Island, Singapore. The plant is nearly 96% complete and expected to commence operations by 2013-end. GMR Infrastructure (Singapore) Pte Ltd owns 66.4 of GMRE and 3.6 per cent is held by GMR Infrastructure Ltd. The balance 30 per cent stake is held by Petronas which will continue to stay invested in the project. "GMR Energy Singapore is a solid testimony of GMR's ability to identify a good opportunity, develop and execute a world class power project of high efficiency in a developed country like Singapore. The project is completely on schedule and within the budget. The divestment is the off-shoot of the Group's well thought out strategy of an Asset Right - Asset Light and Cash Flow based model that the Group has embarked in the recent times," said G M Rao, Chairman, GMR Group. This is the second such strategic move after last month's divestment of 74 per cent stake in the GMR Jadcherla road project at a premium. The cash flows will help GMR Energy to focus on our domestic energy business and accelerate ongoing projects totaling to 5,790 MW, he added. "We conduct regular portfolio reviews to identify the assets where we have already created maximum value as a developer and are right for divestment. This approach builds upon our strengths as a developer, and consequently we follow the principle of 'develop, build, create value, and divest'. We believe this is a sustainable long term business model for Indian infrastructure developers," the statement added. GMR Infrastructure, the flagship of GMR Group, which handles three major airports, five power generating units and several highway projects, is weighed down by mounting debt which is currently pegged at whopping `37,000 crore. The group which also manages Hyderabad International Airport looks to reduce the debt burden by `10,000 crore by pursuing the new strategy. FPM Power is a 60:40 Joint Venture established between Hong Kong-based First Pacific Company Limited and Meralco Power Gen Corporation, a wholly-owned subsidiary of Manila Electric Company. Macquarie Capital India and Standard Chartered Bank have jointly advised GMR on this transaction.