GMR Infrastructure's latest asset light asset right' strategy is aimed at easing liquidity pressures in the company. With a debt of over Rs 30,000 crore, the company is keen to offload stake in assets it owns.
GMR Infrastructure's latest asset-light asset- right' strategy is aimed at easing liquidity pressures in the company. With a debt of over Rs 30,000 crore, the company is keen to offload stake in assets it owns.
Last month, the company sold 70 percent stake in an energy venture in Singapore and this helped the company reduce debt by over Rs 2000 crore.
In an interview with CNBC-TV18, Parmit Chadha, CEO - Strategy & Corporate Development, GMR Infrastructure said that the firm is looking to reduce debt by Rs 10,000 crore via this strategy in the near term.
The company is keen to monetise assets at the right time to not only clean the balance sheet but to also re-deploy funds in ongoing projects, he added.
Below is the edited transcript of Chadha's interview to CNBC-TV18.
Q: Give us some clarifications on what the latest is on the National Highway Authority of India (NHAI) order that you had stepped out of and what the ramifications of any kind of a renegotiation or getting back on that deal could entail for you?
A: We have given our proposal. The implications of that project are beyond just GMR Infrastructure. It is time for introspection on how we can get that USD 150 billion of highways project about in the next plan. So, there have been some introspections. There was a delay in the project, which led to some concerns over the viability and a project of this nature does need to be viable for all concerns.
We have given our proposal to NHAI, which we think works for everybody. They have considered it. As far as we know, it is now lying with the ministry. So, it’s a wait and watch time.
Q: Since you submitted the proposal, you must have worked out what the financial implications would be for you in terms of how this would be revenue accretive and a better idea. Can you walk us through this new proposal and how things being backended works for GMR Infrastructure in terms of financial inflows being more predictable?
A: It is difficult to give any concrete number till we have a firm decision on this. In general terms, we have taken a few basic principles. We said that the interest of NHAI must be protected. After all, there is a certain number that we will bid at. So, we have given a proposal where net present value (NPV) for NHAI is protected. It is more of a reshuffling of cash flows, which is reasonable because it takes into account the fact that this is an extremely volatile situation. In many ways it is unprecedented. What we have seen over the last three-four years nobody could have anticipated either in India or internationally.
It is more of backending the cash flows. It allows some of the cash flows for the developer to make the project viable. It protects NHAI’s interest. One would have noticed that under this situation, we would end up paying NHAI more in total terms than we would have otherwise.
Q: In your last communication with investors the GMR Infrastructure management communicated that their aim is to reduce overall gross debt by close to Rs 10,000 crore over the next one year, can you just take us through what the timelines and exact strategy is and what kind of asset sales you are looking at to reduce this amount of debt?
A: I would like to go back one step. We have started on this new strategy- Asset Light-Asset Right. We did a fairly detailed exercise in January 2012 where we did a lot of scenario analysis, we did a forward looking view as to what would be happening in macroeconomic, what would be the impact on our financials. One of the things that came out was that irrespective of how the economy moves, the basic financing model for infrastructure needs to change.
If we see the current model which is bank lending to the equity markets, we are at such a stage and such a size where the infrastructure demands on the banking sector would be huge. If we look at the fifth year plan and the USD 1 trillion investment, which is planned when you work out the numbers, you would have to have more than 50 percent of the banks gross credit, you would be hitting sectoral caps, similarly for the equity markets.
So, what we are doing is recycling capital. We have worked on some projects, those projects have reached a certain stage and there is a value associated with that. Depending on how much more value we think we can create, either we cash out the project or we continue with it.
If we look at the three sales which have happened in the recent past, which is the Jadcherla, HEG as well as Singapore, there have been two common themes either we have sold an asset where we feel that we have reached a maximum value that we can contribute to it as developers or it is a case where the asset is not working out as per expectations and therefore we are taking a fairly hard call on that.
As a by product of this, the debt goes down. For example, the Singapore investment has made the most news. The project debt on that as I remember right was around Rs 2,300 crore. So, clearly when we sell the asset, Rs 2,300 crore debt is off our books.
In addition, we have got quite a premium of 1,300 crore. So, our equity is up by that amount. It gives us a double positive. Our gross debt comes down as well as our equity goes up. So, that is the approach that we are taking. It is a combination of looking at assets where we think the value has peaked plus assets which are not working out as we expected.
To do this, we have a fairly formal exercise, we do it once a year, we have an external advisory council composed of very eminent people who give us a view on this. So, there is a priority list which has been made out.
Q: I believe you have identified road and international airport projects next in terms of some of this asset raising, could you just walk us through a timeline either in terms of how much you hope to do in sales this calendar year or even in terms of an amount you opt to get done?
A: It would be premature to give a specific number on either roads or airports and there is a reason for that. Say we started this project last year, but it has taken a year for it to execute. The fact is that all three have come very quickly within the quarter but that does not mean to say that we have started in last quarter. The work started about a year back.
So we have a short list, we have done a fairly detailed analysis. We have a short list of assets that we think we can get value from in recycle. Which works out in what timeline is difficult to say but overall the 10,000 crore for the year is something that we are still gunning for.