GMR Infrastructure - Fundamental Call - Consortium

GMR Infrastructure has divested its 70% stake in Singapore-based Island Power for SGD$1.6bn to FPM Power Holdings which is jointly owned by First Pacific Company and Meralco PowerGen Corporation of the Philippines. GMR has made a profit of SGD$307.5m (equity) on the deal. The deal translates a P/BV of 2x for the 800MWs Natural Gas based power plant and the proceeds of Rs16bn from this deal will be used for debt and equity related obligations in various other projects. The total debt outstanding for the group stands at Rs416bn. Last month, the company had sold 74% stake in one of its road BOT projects for a P/BVx of 1.4x at Rs2.1bn to SBI Macquarie.

Deal details: The total project cost of the plant is close to US$1.2bn with a debt-equity ratio of 57:43. GMR had invested close to US$292m till now as equity out of the total equity requirement of US$352m (GMR's share). Post the takeover, FPM Power holdings will infuse US$60m as equity in the plant and is expected to make a profit of US$307m from this deal.

Plant details: 1) The power project is a 2x400MW natural gas-fuelled power plant on Jurong Island, Singapore 2) Petronas, the Malaysian petroleum major, has a 30% stake in it, which is expected to continue 3) The COD of the plant is expected in December 2013 4) GMR plans to procure Natural Gas from British Gas 5) The power sales is expected to be a mix of Vesting contracts (contracts which impose on the generation companies a contractual obligation to produce a specified quantity of electricity at a specified price), Retail and Spot sales 6) The project is 96% complete.

Outlook: With this sale, GMR is swiftly translating itself into an asset-light model. We continue to remain positive on the stock as we believe that a combination of stake sale and an improvement in the operations of the current assets will help to deleverage further. We recommend a 'buy' on the stock.

Source : Equity Bulls

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