No fixed returns now on GMR Energy for investors: Terdal

He said that when GMR Energy had got into the deal, they had assured fixed returns to these investors as markets were bullish at that point of time. However, there’s no fixed return now on GMR Energy for investors.

The company is planning to issue CCPS worth Rs 788.8 crore to Temasek and Rs 348 crore to IDFC consortium.

GMR Energy is now valued at Rs 6,000 crore.

Terdal said he expects favourable decision from CERC for GMR Energy.

Below is the interview of Madhu Terdal, Group CFO, GMR Infrastructure with Latha Venkatesh & Ekta Batra on CNBC-TV18.

Latha: You have given part exit to investors in GMR Energy by giving them a stake in GMR Infrastructure through compulsory convertible preference shares (CCPS). If it’s a CCPS then you have to service that. What is the interest rate at which you will service them?

A: Let me take a step back and tell how this exactly has happened. The Temasek, IDFC and another four investors belong to IDFC consortium, they had invested close to Rs 1,395 crore in 2010 and this investment - we were to give them an exit in three years time and there were onerous obligation on GMR Infrastructure as well. Obviously the investors looked for an exit because they were waiting for almost three years and they had also brought the money partly by way of foreign exchange. So, they had lost substantial money by foreign exchange also, so they had a very legitimate interest in finding on cash exit but GMR Infrastructure was not in a position to make them a cash exit.

So, what we found as a very winning formula where 50 percent of the entire money was converted into GMR Infrastructure by giving them an exit in the liquidity shares but the most important part is this conversion is not happening now, the conversion will happen not at Rs 21 today, which is the price but in about 12-18 months from now where we believe that it will be substantially higher than the current levels, of course subject to the Sebi formula and 18 months down the road that conversion will happen and so what is that they have got.

They have got 50 percent cash exit, they are very sure and they have been derisked – that is one advantage they have got and for us we have got another two-and-half years to go for an initial public offering (IPO), of course we are in a position to go at any point of time and market give a signal but at least we are going to continue with that and most importantly there is no return now guaranteed. If you remember at that point of time we had entered, we had assured fixed returns to these investors because they were the bullish days at that point of time.

Latha: How much had you promised an assured returns and what is the interest on the preference shares?

A: Now there is no preference shares return, now there is no return at all. Going forward return is stopped, for the last two months and investors have accepted looking at the current realities of the market so they have exhibited a level of maturity because the energy sector is passing through a bad patch of time so they have sacrifice to earn any of their interest and we have given them a very good interest.

Currently GMR Energy -- with understanding with investors, it is valued at 6,000 crore but if you look at our own valuation at GMR Infrastructure, it is just 8,000 crore. So, if the energy sector piece itself is valued at 6,000 crore, we believe market will get the signal and GMR Infrastructure itself should be rerated now.