Adani Transmission deal to help GMR Energy pare Rs 324 cr debt

Adani Transmission and GMR Energy have entered into an agreement, where the former will acquire 74 percent stake of Maru Transmission Service and 49 percent shares of Aravali Transmission Service of GMR Energy.  Both the assets are in Rajasthan and are operating with an average capacity utilisation of over 99.90 percent. The deal value for both the projects is Rs 100 crore.Parag Parikh, CFO at GMR Energy, said that both assets were generating revenues of Rs 72 crore. He also added that both the projects were adding about Rs 3 crore to the total profit of the company.
Both the assets put together have a debt of Rs 324 crore, said Patil, adding that with the current divestment the debt will be brought down.

Below is the verbatim transcript of Parag Parikh's interview to Reema Tendulkar and Nigel D'Souza on CNBC-TV18. Reema: First if you could tell us how much were these assets generating by way of revenue and what was their profit contribution? A: GMR Energy has entered into the agreement to sell our stake of 74 and 49 percent in Maru and Aravali. These are two transmission assets and if you look at our energy portfolio these were two standalone units within our energy business, so it is in that background we thought it make sense for us to divest these assets. As far as these two assets are concerned the overall length of these assets was close to 370 kilometres. The assets wise they were awarded in 2010 that it got into implementation in 2013-14 respectively. The two assets together was generating revenue of close to about Rs 72 crore and continuing in our strategy of asset light, asset right we thought selling these assets. Certainly, deconsolidates our debt to that extent as well as creates value for the shareholder. Reema: What about the profit contribution? A: The two projects at a profit contribution were close to about a positive number of Rs 3 crore, which is both combined. Both are identical assets. Nigel: But give us a few more details. It is a measly Rs 72 crore that it was contributing to the total revenues in the past year or so was these assets running at a 100 percent capacity utilisation that’s the first part of the question and you told us about the revenue, what about the debt that was attach to any of these two projects? A: As far as transmission assets are concerned once these are into operations they do run into practically of full availability capacity, so when I say this as far as the assets were concerned they were running at full capacity and in this full capacity, the assets were generating the revenue that I mentioned. As far as debt is concerned both the assets put together had a debt of Rs 324 crore and as we divest to that extent the Rs 324 crore of debt is actually being brought down. Over and above that we have retained the right as far as the regulatory receivables are concerned. So there is a regulatory claim that is going on and this has a potential of giving us a further additional Rs 120 crore. Reema: Will the Rs 324 crore of debt associated with these companies get transferred to Adani Transmission? A: That’s correct. Since these debts are at the special purpose vehicle (SPV) levels and as we are looking at selling the SPVs itself, the debt associated of Rs 324 crore goes along with the assets sale. Nigel: Just want to understand that Rs 324 crore is the debt that you are mentioning this is for the 100 percent or this is just for the 49 percent and the 74 percent that in fact Adani Transmission will be acquiring. A: While this Rs 324 crore is associated with at a 100 percent debt for equities, but when you look at from a sale perspective for example when you are selling 74 percent and to that extent if you see even in the other one while we are selling 49 percent, there are options for this also being sold and bought vice versa, so to that extent from a consolidation perspective this anyways case goes off now. Reema: So this Rs 100 crore of equity value that you get on account of the divestment that will go in paring down your core debt? A: That’s correct. The objective at all times for the group has been to selectively look at assets especially post implementation have got into operations and it enable us to use this capital to paring the debt as well as recycling of a capital. So it is on those objectives we have been continuously focussing on picking up assets, divesting them and strengthening our balance sheets. Nigel: It is a step in the right direction, but these numbers are very, very miniscule in terms of the big debt that GMR Infra is sitting on, so could you help us with some numbers. What exactly is the debt that is sitting in GMR Infra’s book, you can also tell us what’s the debt that sitting in GMR Energy’s books and also what are the efforts to bring it down now going ahead. Come FY17 and what could the debt come down to comes FY18, maybe you all have a bit of a roadmap that you will have already laid out? A: For the current point of time, I would like to sort of restrict myself to the transmission transaction, but having said that as far as the overall debt is concerned, efforts across have been made in terms of ensuring that the debt has been brought down. As you are aware we are also looking at a strategic investor as far as GMR Energy is concerned and at an appropriate time we will come back to it once the strategic investment is concluded. Reema: Is it likely to happen in this financial year or this calendar year? A: Well, we have already announced a little while back and we will come back to you at appropriate time. Nigel: Then give us details or at least you can share with us. GMR Energy what kind of revenues does it make and what kind of profitability does it make, so we can arrive at a value at least of valuing GMR Energy. So could you tell us that in FY16 what kind of revenues that you did? A: If I have to look at it from a valuation perspective, I would like to sort of leave two clues, one as far as the top line is concerned, the top line for energy business is close to Rs 5,500 crore and more from a value perspective that you are referring to as far as earnings before interest, taxes, depreciation, and amortization (EBITDA) is concerned, the EBITDA have actually from FY15 numbers which was close to about Rs 220 odd crore have risen for March 16 close to Rs 1,100 crore. That as far as the EBITDA improvement is concerned. As far as valuation is concerned on back of the envelope is to look at the strategic investment that we are right now taking up at GMR Energy, that investment is announced for a 30 percent stake for USD 300 million.