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UBS Investment Research
GMR Infrastructure
Intergen stake sale is a positive
Agreement with China Huaneng Group to sell stake for ~US$1.2bn
GMR has entered into an agreement with China Huaneng Group to sell (subject to
regulatory approvals) its 50% stake in Intergen for US$1,232m. GMR had
purchased the stake in Intergen in Oct-08 for US$1,135m (US$954m was the
original cost + US$181m of working capital related infusion later on).
Transaction could be completed within this financial year
The transaction is likely to be completed within FY11 and then GMR would not be
required to consolidate Intergen debt (its share of ~US$2.2bn) in its financials next
year under IFRS. Repayment of debt of ~US$1bn, taken for the stake acquisition,
would reduce interest costs by ~US$65m pa (GMR had a gross debt of ~US$4.6bn
at end-FY10; net-debt to equity of ~2.2x). ~US$225m of equity would also be now
available for investments in its various projects (primarily power and roads).
Frees up management bandwidth, no material impact on valuation
The exit from Intergen is a positive as it would enable the company to focus on
high-growth opportunities in India (Intergen had assets across multiple
geographies- Australia, the Netherlands, the UK, Mexico and the Philippines). It
also assuages concerns that GMR would have to exit Intergen at a loss. This
transaction however does not impact our valuation as the value to be received by
GMR is equivalent to the total outgo on the stake purchase (initial cost of
~US$1.1bn + interest cost of ~US$130m less US$32.5m of dividends received).
Valuation: Sell rating with SOTP-based PT
Our PT comprises of 34% from real estate (airport-linked) and 31% from power.
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