GMR Infra to raise funds via FCCBs to service debt

GMR Infra plans to raise about Rs 2,000 crore through foreign currency convertible bonds (FCCBs), which will be issued as 60-year-old perpetual bonds. "GMR has concluded today, a foreign currency convertible bond deal with Kuwait Investment Authority for a 60 year foreign currency convertible and it has been subscribed by Kuwait Investment Authority," Madhu Terdal, the company CFO told CNBC-TV18.Of the Rs 2,000 crore, Rs 1,500 crore will be used to service GMR's debt. Lenders can convert the bonds into equity after a period of 18 months. GMR's consolidated debt stands at Rs 6,900 crore, which is expected to come down to Rs 5,400 crore, post the issuance, Terdal said. The company will pay coupon at 7.5 percent rate. The US dollar denominated bonds will mature in 2075.In last 24 months, the company has raised Rs 10,700 crore through equity.Below is the transcript of Madhu Terdal’s interview with Sonia Shenoy and Anuj Singhal on CNBC-TV18.Sonia: Can you start off by telling me what the exact plans are in terms of fund raising?A: This is a very important day for GMR and also for the Indian infrastructure as well. GMR has concluded today, a foreign currency convertible bond deal with Kuwait Investment Authority for a 60 year foreign currency convertible and it has been subscribed by Kuwait Investment Authority. As you are aware Kuwait Investment Authority is one of the world’s largest sovereign wealth funds that is SWF. It is a USD 600 million fund which invests across the globe and this is the first significant largest investment of Kuwait into India. This signifies a lot to the country, to the sector as well as to the GMR Group.Anuj: How much have you raised, if you could tell us again, and at what price has the conversion been set? I may have missed that.A: We have raised USD 300 million, approximately, Rs 2,000 crore and this is of course, subject to the approval to the Reserve Bank of India (RBI) but this will be concluded very shortly. The details of the instruments as under, it is like a perpetual bond it is a 60 year instrument. It will carry a coupon of USD 7.5 which is permitted by the Reserve Bank of India - that is the maximum that is permitted. And the coupon is payable annually. That is the details of the instrument.Sonia: So, Rs 2,000 crore will be raised through these foreign currency convertible bonds (FCCB). Can you tell us when the bond eventually does get converted to equities, will there be any kind of dilution and if yes, what will it be?A: Important thing to note here is the conversion will be happening almost about 20 percent premium to the average three months average price of GMR growth. So, that conversion will happen at around Rs 18.Anuj: And apart from these FCCBs, anything else that you have raised?A: Let me summarise the important features that are in built here. Number one is that it is a 60 year instrument. Number two is that the investor has voluntarily agreed not to convert into shares for at least a minimum of 18 months. But, after three years of the bond tenure, we can actually mandatorily convert these bonds to equity.

So, this FCCB should be treated more of an equity rather than a convertible bond. So, the idea is basically, we are expecting that as soon as the price hits Rs 23.40 and it stays consecutively for two weeks of time, then the GMR gets a right to request the investor to compulsorily convert these bonds to equity. The bonds themselves are due 2075. So, the bonds are not repayable till the year 2075. Our annual obligation is to service the coupon interest of Rs 7.5 percent annually in terms of dollars. The advantage is that this Rs 2,000 crore will be utilised to reduce the debt of GMR Infrastructure Ltd. (GIL) and on a standalone basis, this amount will reduce about 40 percent of the GIL’s standalone debt and about 23 percent of the entire consolidated corporate debt of the globe.If you recall, we have been consistently telling that we will target to reduce our corporate debt by 30-40 percent and this is just a continuation of GMR’s turnaround story and it just consolidates GMR’s turnarounds efforts.Sonia: What exactly is the debt currently and how much will it reduce by in absolute terms?A: The total consolidated debt of corporate debt is Rs 6,900 crore as on September, 2015. If we recall, it was Rs 7,700. We have already reduced in just about six months time, we had already brought it down by around Rs 800 crore. Now, out of Rs 2,000 crore, minimum Rs 1,500 crore will be used to reduce the debt. So, this will bring down our corporate debt on a standalone basis by 40 percent and at a consolidated basis, it will be reduced by around 21 percent. So, effectively, the consolidated debt will come down from Rs 6,900 crore possibly to Rs 5,400 crore range.Anuj: Your equity has already been diluted quite a bit and it looks like there could be further equity dilution. What about the airport plan that you had told us last month about using that as a mean to raise funds? A: Airport is a separate process that is going on. As I told you, we are looking at raising resources as the airport holding company as well but that is one of the methodologies we are using for raising resources. Possibly as and when the efforts culminate, I will be able to speak more on that. Sonia: Just to follow up the question that Anuj was asking, is it that you are not receiving enough interest in any of these stakes because not just the airport, you had plans to sell one of your Hyderabad hotels as well and that plan has been on for a year now, so when you have so many assets that you can sell, why have you looked to use the FCCB or the debt route? A: Let me explain to you, I think we are making a very light of a very significant event. Let me once again raise this, GMR is raising various instruments and varieties of money at various levels. If you recall, group has raised totally including this effort, Rs 10,700 crore of equity money during the last 24 months. I would like you to please recall, totally Rs 10,700 crore has been raised by divestment of assets, by doing a qualified institutional placement (QIP), by doing a rights issue. So, this a continuation of that effort. This symbolizes the foreign investors interest in India who has the first major investment into the country and into the infrastructure and it speaks a lot of the foreign investors’ confidence in the GMR’s group ability to turnaround and overcome its current stress that it has been going through. This is an extremely significant development in the history of the group and in the history of Indian financial sector itself. Anuj: That point is taken but at the end of the day it still does not sort your overall debt problem which is so huge. Annually you still haven’t answered in terms of the equity dilution. How much equity dilution will you entail now going forward?A: Equity dilution if you take at Rs 18 level, currently we are at 61-62 percent, it will come down to around 53-54 percentage levels. As and when the equity conversion happens, as I again told you, the equity conversion will happen earliest 18 months from now, not today. If the investor chooses not to convert then we can mandatorily covert after about three years. The rate comes to around Rs 23.40. Going back to Anuj’s question, this does not mean that there is no interest in airport or we are not doing the airport thing; do not come to any such kind of incorrect conclusions. This is the most significant because GMR Infrastructure share price is subdued and it is affected by negative sentiments because there is a substantial corporate debt sitting at the GIL level. Our first effort and major exercise is to reduce the corporate debt and give the confidence to the investors who have trusted in us. So, this will bring down the 40 percent of the consolidated debt so that is the significant step group has taken. Airport definitely we will continue to do that, you will see that in the coming days, you will see those results as well.