Companies

GMR Infrastructure evaluating de-merger options

V Rishi Kumar Hyderabad | Updated on August 04, 2020 Published on August 04, 2020

Move aimed at creating further value for shareholders

With the airports vertical making significant progress in terms of strategic stake sale, GMR Infrastructure Limited is evaluating a couple of de-merger options.

The move is aimed at value creation through deleveraging, vertical de-merger to create further value for shareholders and by divestment of non-core businesses.

Two options for de-merger

A sub-committee of the board of directors of the diversified infrastructure company is considering two options for de-merger. While one seeks to consider the de-merger into two entities (airport and non-airport), the other option is for three entities– airport, energy and highways.

GMR is keen on pure play in the airports business as the value of the sector gets reflected, paving way for possible listing. Given the tough business environment, cash conservation through rescheduling of capex is top on the company agenda.

According to the management, the key criteria for de-merger is to create verticals that allow for pure-play, thereby attracting strategic investors or help raise capital and help further reduce debt.

The de-merger plan is expected to eventually lead to value unlocking of airport and non-airport businesses, simplify the corporate holding structure, and enable both airport and non-airport businesses to chart out their respective growth plan independently.

This will also provide for multiple platforms to raise fund to grow respective businesses – both from private and public.

During a recent investor presentation after the fourth quarter and annual results, GMR highlighted the strategic partnership with Groupe ADP, where a minority stake sale of 49 per cent in GMR Airports Ltd (GAL) was concluded, raising ₹9,813 crore. While in Tranche One GMR received ₹5,250 crore in February 2020, GMR raised ₹4,570 crore last monthin Tranche II.

Having completed the transaction, GMR has utilised the proceeds for servicing of debt and purchase of private equity investors in GAL.

Improved cash flows, profitability

According to the company, the deleveraging will result in improved cash flows and profitability over the medium term, and pave the path for significant value creation through deleveraging. The vertical demerger is expected to create further value for shareholders.

The company management is working towards divestment of non-core businesses covering the energy vertical and highways segment.

As part of its efforts to pare debt, freeing up equity to focus on new projects, GMR is also working towards divestment of non-core assets, including land at some of its infrastructure, and the monetisation of the Barge Mounted power asset.

The company is in discussions with big clients for land monetisation. This includes engagements on Haldia Petrochemicals Ltd move to set up a refinery-cum-petrochem project in 2,500 acres and with HPCL-GAIL consortium for Petrochem complex in 2,000 acres and a large Chinese Stainless Steel Manufacturer for 500 acres and an Australian Lithium Refinery for 100 acres.

GMR Energy arm had entered into a Sale and Purchase Agreement with a prospective buyer for a consideration of $15.50 m for the sale of the Barge Mounted Power Plant.

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Published on August 04, 2020
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