GMR keen to divest stake in group companies, says CFO

The Bangalore-based company is also looking for strategic partners to sell upto 49% stake in GMR Highways, one of the three infrastructure holding companies besides GMR Airports and GMR Energy. It will garner around Rs 4,000 crore by diluting stakes in group companies

GMR Sports has also been scouting for strategic investors in the Indian Premier League team Delhi Daredevils and wants to dilute 10-15% stake along with GMR Higways--its roads division.

Stake sale is crucial for GMR which is reeling under around Rs 33,000 crore of debt on which it pays around Rs 500 crore interest annually. Subbarao, however added, " High debt is inevitable due to nature of business."

Below is an edited transcript of his interview with Udayan Mukherjee.

Q: A lot of reports are doing the rounds about how you were trying to deleverage your balance sheet. Can you give us a concrete blueprint of the steps that you are taking which might fructify in the next two-three months?

A: Let me just give you a little bit of background. The debt is about Rs 33,000 crore on the net debt basis. 50% of the debt belongs to the projects which are under execution. So it is not the standalone or absolute volume of debt that should be taken into the consideration because various other factors are also included. Most of the debt is a project finance debt where the projects have adequate cash flows to service the debt on regular basis. The Ambala-Chandigarh project is under legal dispute because of the traffic diversion issues. Except for that, every other project - the airports, road projects, power projects - are in a position to service their debt. Hence, there is absolutely no problem on serviceability of the debt though the volume of the debt is Rs 33,000 crore.

This is the infrastructure sector, so you need the capital to build the projects. For example, it is impossible to do a software business without people. If you say that you have to do the banking business without deposits, it is impossible. Similarly, infrastructure business cannot be done without the capital, which is debt or equity. It is the nature of the business and people have to understand this. Analysts have to understand that this is the nature of the business. They have to see what the quality of the debt is and its ability to be serviced by the projects. So where it is deployed, whether those projects have adequate cash flows to service the debt is very critical to understand the nature and the profile of the debt.

In our case, we confirm that all the projects except one are in a position to service their respective debts, there is no concern regardless of the volume of the debt. If you look at the asset growth in the last couple of years, from Rs 27,000 crore, the asset has become today Rs 46,000 crore, including capital work in progress. So the ratio of the debt to assets stands at 70%, which means 70% of the total project cost is funded by debt, which is a fair scenario for any infrastructure project. By end of this year, the EBITDA would have gone up by almost 100% because of the Delhi tariff order, so the debt to EBITDA would significantly come down to less than 4. The EBITDA to interest will also become very comfortable.

Q: Why don’t you tell me what you are trying to deleverage your balance sheet?

A: The debt has been raised for the project finance, the debt has been raised partly for funding the equity, so to the extent the debt has been raised for funding the equity. We are deleveraging through a divestment process, and if the market is good perhaps we could go through equity issuance. We have passed the resolution, so if the market is appropriate, if the pricing is appropriate, we will go ahead with the equity issuance.

But in the next few months, we are taking steps to divest some of the projects, some road projects and some of other assets. So we will go ahead with the divestment process wherever it is necessary, as it has already been communicated to the media.

So to deleverage the balance, the specific assets would be the road projects, some of the projects in the other sectors and the minority stakes in the other projects. The work has already begun and we have achieved significant progress on the divestment process. So this is the current status of the divestment plans and we would be able to achieve decent progress in the next four-five months time.