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M&A-Savvy GMR To Go Slow On Big Deals; Focus On Greenfield Projects

30 November, 2010

In a move that mirrors trading activity, GMR Group has bought and sold its interest in Intergen NV, a global power generation major, in a matter of two years, to China’s Huaneng Group for $1.2 billion at a price that covers the acquisition and interest cost. The divestment of the asset also signals the fact that the Group has capped its global ambitions as it looks to divert all its energies and capital on the Indian infrastructure story. With a lighter balance-sheet and some hard lessons learnt, GMR Group, which has been rewarded by the markets today for the sale, will not tread the blockbuster M&A journey in the near term or till such time when it is ready to absorb a much bigger asset. In a quick interview with VCCirlce, GMR Group chief financial officer A Subbarao (in pic) talks about global ambitions, triggers for the Intergen sale and M&A strategy going forward. Excerpts:-   

Is the Intergen divestment a big burden off your back? How does the deal shape up your balancesheet?

We have entered into an agreement with China’s Huaneng Group to divest our 50% interest in Intergen NV for a consideration of $1.23 billion in cash. Post signing the share agreement, they have to take approvals in China and other jurisdictions of Intergen. The transaction is expected to be completed in two months. With the divestment, we hope to deleverage the balancesheet by $1 billion. It also releases $225 million for equity investments. We can also avoid interest cost of $60 million per year. There will no change in consolidated debt but the off balancesheet debt will be lowered to the extent of $1 billion (which was the Intergen acquisition debt).

Intergen turned out to be two-year play for GMR. Do you think you picked up a wrong asset?

It was not a wrong asset. In retrospect, it might look like it. The reason why we acquired it was that it would give us a global footprint and there were many intangibles such as their expertise. It did not work out the way we wanted. Also, Intergen asset was a bit too big for us to manage as it occupied a lot of management bandwidth. At the same time, a lot of Indian advantages emerged and we thought it made sense to redirect capital to those. Meanwhile, these offers came.

Would the Intergen experience turn you more diligent on blockbuster deals? Does the Intergen sale signal a cap on your global ambitions?

We will not be on the scale that we thought of (post Intergen buy). This is a big learning for us. We will be extremely careful. We are not looking at acquisitions right now. We will go in for greenfield projects rather than acquisition. We will be extremely selective on overseas projects. We will only do it in the airports sector. We will continue to hunt for airport projects (overseas) if the development potential is great and if the returns are higher than what we get in India.

Did you get a fair valuation in Intergen?

At the price, it will recover acquisition and interest cost. When we acquired the asset, the valuations were at the peak. But things have changed in the last two years and valuations have dropped. We should view it in that context. For us, the deal releases capital which was stuck.

How does the India project pipeline look like?

In power, 6000MW projects on course and now we are thinking of higher capacities. These will need huge capital. We are looking at the ultra mega power projects as well. In roads, $1 billion is in the pipeline in the construction phase.


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M&A-Savvy GMR To Go Slow On Big Deals; Focus On Greenfield Projects

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