GMR Infrastructre, one of the fastest growing infrastructure companies in India, has decided to sell its 50% stake in U.S.-based power utility InterGen NV to Chinese based-Huaneng for $1.5 billion and the deal would be closed by the end of this calendar year, Economic Times reported today quoting sources close to the deal.

According to the report, the Chinese Infrastructure major is in the final stage of due diligence and the legal documentation process for transfer of ownership from GMR has already been initiated.

The GMR spokesperson was not immediately available for comments.

InterGen - which has combined power generation capacity of over 8,000 megawatts – owns 12 power plants in various parts of the globe including the United Kingdom, Australia, the Netherlands, Mexico and the Philippines.

This acquisition will help Huaneng expand its global operations. China Huaneng, a Chinese state-owned power generation enterprise, acquired Tuas Power of Singapore for $3.1 billion in 2008.

Tata Power, who was looking aggressively for acquiring Inter-Gen Assets, has withdrawn due to differences in valuation. Tata expressed its interest in Inter-Gen publicly in its AGM recently by none other than its Chairman Ratan Tata.

“The deal is slightly above the book value of the company and it makes sense that why Tata Power withdrew from the race,” Rupesh Sankhe, an analyst from Angel Broking told VCCircle.

“Most of the overseas markets have over supply in power, while there is a big demand–supply gap in India. So it would be sensible to concentrate on the local market than overseas. GMR can use this money to reduce their debt and they can look into domestic market to expand their power generation capacity,” he added.

GMR paid $1.1 billion to buy 50% in InterGen in 2008 and financed the entire deal through debt.  According to analysts, GMR’s intenton to service the debt through dividends received from InterGen, did not materialise due to the continuous underperformance of the company.

“Our calculation changed due to the European recession as InterGen did not contribute the expected value. We will redirect the capital raised from asset sale on the domestic market,” GMR CFO A Subba Rao said. GMR’s debt currently stands at Rs18,000 crore.

The interest on the InterGen loan is $60 million while dividend receipts are only $32.5 million. Experts said GMR's debt burden will increase substantially after March 2011 when the accounts of InterGen will have to be consolidated as per the new accounting rules. IFRS is standard regulations adopted by the International Accounting Standards Board (IASB).

They cover various aspects of accounting/finance, including recognition of revenues, treatment of deferred items such as taxation, depreciation and amortisation, method of treating goodwill, among others.

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