A number of developments have taken place for GMR Infra over the past few months. The company has opened a Rs 1400-crore rights issue, recently upped its stake in the Delhi Airport and was also in the news for what some analysts said was “aggressive” bidding in the coal auction.
CNBC-TV18’s Latha Venkatesh and Sonia Shenoy spoke with GMR Group CFO Madhu Terdal over each of the developments.
Below is the transcript of the interview on CNBC-TV18.
Sonia: If you can just start off by telling us how much you will have to shell out for this stake [in DIAL]? Have you been able to tie up the funds at this point?
A: I would like to make a disclaimer because we are in the process of our rights issue. Rights issue has opened yesterday so I will be constrained by the declarations that we have made in the letter of offer (LOF). Legally we are prohibited from talking something more than that so within that constraint whatever is possible I will be there. I would also like to caution that everybody should be guided by what has been appeared in the LOF as well as the corrigendum’s what we are publishing and not by what I am saying.
The Malaysia Airports Holdings Berhad (MAHB) stake we have acquired yesterday and we have paid USD 79 million of the stake of 10 percent. However, it in no way represents the true value of Delhi Airport because let they are not be construed in a different way but there were some shareholder’s rights and obligations between the shareholders.
It is not that the Malaysian Airport holding has exited because Malaysian Airport has been our partner in Delhi airport, Hyderabad airport, in Maldives they have been a partner. They have been our trusted partner always. However, GMR wants to consolidate our shareholdings in our Airport business.
Latha: You wanted to buy back?
A: We wanted to buyback so we have acquired that the entire financing has been in place and the money will be paid. It has been already organised by a bank and the money will be paid once the Airport Authority of India gives its approval.
Sonia: By when you think?
A: It should take about 2-3 weeks time.
Latha: Is the airport making money so should we therefore expect that what will come to your profit & loss (P&L) will be higher than what it was in the previous quarter?
A: GMR Airport’s limited will be acquiring this stake. So GMR Airport currently holds 54 percent in Delhi International Airport so our stake will go to 64 percent. So there is no money coming up into the company but we will be consolidating our own share. It will happen as and when the Delhi Airport declares dividends obviously we will be entitled for the higher dividend.
Latha: Is the Delhi Airport making money for the subsidiary company itself?
A: Till last year, yes, it is making a profit but this year already the regulatory authority has come out with a draft paper which is under discussion. So I will not be able to precisely say that whether it will, but this year for March 2015 definitely we will be making profit.
Sonia: Would you look at buying the other 10 percent stake that is owned by Fraport?
A: It will be a business decision as I told you I will not be able to comment more something which we have not done or which we have not disclosed. So I will be constrained by that.
Sonia: Let us talk about the other issue you just won the Talabira-1 coal block, it was a very aggressive bid, a negative bid of Rs 478 per tonne. What is the capacity of that block and is it enough to fulfill your own requirement or would you need to procure from some other sources?
A: I do not know why you are describing it has very aggressive.
Latha: Because you have to pay Rs 478 and you have to mine the coal without getting compensated.
A: That is right, but if you see all the peers who have bid in, if Rs 378 is the royalty which we are paying it. Out of the Rs 478 Rs 100 will be pass through Rs 378 is what we cannot pass through and there will be a mining cost of the extent of around Rs 250 to Rs 300. So to that extent we will not be able to pass through to the consumers.
Latha: So Rs 600 you can not pass through?
A: we will not be able to pass through. If you really look at our other competitors, if this translates to around 43 paisa per megawatt. If you look at other competitors the next lowest is around 57 paisa and remaining are 72 or 96 paisa. So out of the 6 mines if you could do a cost benefit analysis ours is the least cost at 43 paisa we have won that.
What is important is that the way in which this has got only around 11-12 million tonne. But the strategy is that we did not want to have a larger mine which we will not be able to dispatch full power because the full transmission lines between north and south are not completely operational it will take 12-18 months.
Our strategy was to take a mine with least capital cost and with the least cost that is possible and run through the full capacity for the next 2 years by then our second bid the Ganeshpur mine which has got about 118 million tonne that we will be able to use it for the next 20-25 years. So the strategy was a combination of a short and a small mine and with a larger mine so that our initial capex as well as the operating cost will be to the barest minimum.
Latha: You already signed power purchase agreement (PPAs) for this power project for which you are using the Talabira coal?
A: As it is we do have some short-term PPAs indeed in anticipation of this much ahead we had already signed some short-term PPAs. However, we will be now entering into the medium-term PPA.
Latha: What is the pricing in that PPA?
A: It would be in the range of around Rs 3.10 to Rs 3.30.
Latha: With this 43 paise, which you have to forego you will still be in the green in these two PPAs?
A: The shorter PPAs are not actual correct measurement to measure because once we are eligible to apply for medium-term PPAs we will be now -- because still I have got a full fuel supply -- I was not eligible. We were doing a short-term PPAs. Now we will be eligible for medium-term PPAs. I believe that the medium-term PPAs will be in the range of minimum Rs 3.20 to 3.50.
Latha: That is where the confusion is coming in the new PPAs that you will enter into it will be by an open bidding process right. So how will the government be able to ensure that you are passing the 43 paise ? If it is a competitive bid how is the government working it out?
A: Overall the cost will be still less and there will be lot of changes in terms of logistic. People can swap mines at a later date.
Latha: Are you planning to swap?
A: It is too early to come out with the entire strategy. The best thing that has happened is one is it has given the assurance of the full coal supply that is one number. Number two it has entitled to apply for the medium as well as the long-term PPAs and thirdly most importantly going forward it is giving you flexibility how we improve the efficiency. We have to wait for the full strategy to fold out. But suffice it I can say that from our current economics which we have been able to convince our lenders also the economic is working out extremely good.
Latha: You will be in the green?
A: We will be in the green, may not be in the first year. First year it will be difficult for us.
Latha: Your new PPAs have to be above Rs 3?
A: Absolutely correct.
Latha: Finally we understand that of the 16 power projects 8 are operational and that you are looking to sell off some of them? Should we expect an announcement in a quarter or so?
A: As I told you I will not be able to earn more details on that but I can say that as you have been saying that we have been following an asset light model whether it is divestment or acquisition, capital model. Cash flow generation is our motto and de-leveraging is our motto.
The main purpose which you had really invited me for on the rights issue actually we have just announced yesterday, since our rights issue has opened for a Rs 1,400 crore.
We have been informed by our promoter that is GMR Holdings that they have tied up full Rs 1,250 crore complete financing and they have already started pumping in the money as advance subscription fee. In fact they have already put in two stages Rs Rs 214 as well as Rs 327 crore already that money has already been put in to the rights issue in advance subscription money. So this right issue will be open till April 8 th and after that we will be able to freely talk more on that.
Sonia: What is the dilution that you are looking at?
A: There will be no dilution it will be a rights issue so everybody will be there.
Latha: What about the earnings per share (EPS) dilution?
A: Extra share I will have to workout. Maybe at Rs 15 we will be doing Rs 1,400 crore, I am not able to recall. Important point is the entire money promoters have already declared in the prospectus that they are not only subscribing to the entire quota but also additional anything unsubscribed is there then they will be subscribe in that event their shareholding may improve and more importantly out of Rs 1,400 more than Rs 1,200 crore will be uiltised to reduce the leverage at the holding company. So that is the main purpose of it.
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