Gammon Infrastructure Projects Ltd (GIPL), a public listed subsidiary of construction major Gammon India Ltd, has agreed to divest nine road and power projects to funds managed by global asset manager Brookfield and an infra fund run by Kotak Private Equity, it said on Friday.
The company signed a share purchase agreement for selling Andhra Expressway Ltd, Rajahmundry Expressway Ltd, Kosi Bridge Infrastructure Co. Ltd, Gorakhpur Infrastructure Co. Ltd, Mumbai Nasik Expressway Ltd, Vijayawada Gundugolanu Road Project Ltd, Pravara Renewable Energy Ltd, Sikkim Hydropower Ventures Ltd and Aparna Infraenergy India Pvt. Ltd to BIF Holdings Pte Ltd.
BIF Holdings is jointly held by funds managed by US-based asset manager Brookfield Asset Management and Core Infrastructure India Fund Pte Ltd, an infrastructure fund managed by Kotak PE. Brookfield had come in as one of the two anchor investors along with Sumitomo Mitsui Banking Corporation two years in the first close of the fund. Kotak PE is yet to announce a final closure of the $250 million fund.
The total project cost at completion of the asset basket is estimated to be around Rs 6,750 crore (Rs 2,935 crore of six operational projects and Rs 3,815 crore for remaining three projects) of which Rs 3,097 crore has been capitalised till March 31, 2015.
Gammon said the deal value for the sale of the nine projects includes payment of Rs 192 crore in equity besides repayment of Rs 371 crore in inter-corporate deposits to GIPL by the project companies leading to cash inflow of Rs 563 crore (about $85 million).
In addition, it also involves waiver of advances worth Rs 285 crore by the project SPVs to GIPL. In addition, the deal would also lead to transfer of debt worth Rs 1,718 crore (as on March 31, 2015) on the books of the SPVs.
Additional cash inflows of up to Rs 100 crore (approximately $15 million) may be realised by GIPL upon crystallisation of certain milestones in future, the company said in the statement.
This means the total enterprise value of the deal is worth around Rs 2,666 crore ($400 million), making it one of the largest asset sale transactions in the infrastructure sector and the biggest involving PE investors.
Last November, JSW Energy had signed a deal to buy two out of the three hydro power assets of Jaiprakash Power Ventures Ltd at an enterprise value of Rs 9,700 crore ($1.57 billion then).
Kishor Kumar Mohanty, managing director, GIPL, said, “This transaction allows GIPL to get the much needed capital released from its completed projects and improve its financial position to capture the new opportunities in the infrastructure space arising out of governments new initiatives."
Post the transaction the consolidated debt of GIPL will stand reduced from Rs 3,947 crore to Rs 2,229 crore which is expected to improve the gearing of the firm at the consolidated level from more than 4x to around 2x going forward and make GIPL net cash surplus, it said.
Anuj Ranjan, managing partner, Brookfield, said, “This transaction represents Brookfield’s first major investment in Indian infrastructure, and provides us a great platform to participate in the Indian growth story over the long term.”
For US-based Brookfield Asset Management, a global alternative asset manager with over $200 billion in assets under management as of June 30, 2015, this is the second significant deal in India in as many years and the first in the infrastructure space. Last year it acquired majority stake in a string of special economic zones (SEZs) in Delhi NCR from Unitech group in one of the largest ever PE deals in the real estate sector.
The deal comes at a time when PE activity in the infrastructure space is picking up big time. Indeed, infrastructure focused funds were the top net investor among all alternate investment funds registered with securities market regulator SEBI in the second quarter of the year ended June 30, 2015.
Meanwhile, GIPL board has also recommended divestment of 50 per cent shareholding of Vizag Seaport Private Ltd for a consideration of Rs 62.5 crore ($9.5 million) to Lastin Infrastructure Projects Ltd, its partner in the JV.
Incorporated in 2001, GIPL executes PPP projects road, port and power sectors through SPVs and is part of Gammon group which is engaged in civil and construction activities including construction of roads, bridges, flyovers, power plants, chimneys and cooling towers, cross-country pipelines, structures for hydro-electric power projects, buildings and factories.
Ambit was the financial advisor to GIPL in the sale transaction to Brookfield and Kotak PE.