GMR to sell its 50% stake in Intergen NV; to free up US$225m:: RBS

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GMR Infrastructure (GMRI IN, Rs46.15, Buy) – GMR to sell its 50% stake in
Intergen NV; to free up US$225m

Summary
GMR agreed to divest its 50% stake in Intergen NV to China Huaneng Group for US$1.23bn in
cash. After adjusting for about US$1.0bn in debt related to the Intergen acquisition, this leaves
the company with US$225m towards its equity stake. The transaction is expected to be
completed by 1HCY11. We believe the much awaited divestment is a positive for GMR because it
would free up capital to be directed to GMR’s other growth projects. We don’t see a material
impact on our valuation due to the transaction, and we reiterate Buy.


Development
GMR Group entered into an agreement to sell its entire 50% stake in its overseas power
generation subsidiary Intergen NV to China Huaneng Group for US$1.232bn in cash. The deal is
expected to close by 1HCY11. GMR acquired the stake in Intergen at US$1.135bn in October
2008, with cUS$1bn financed through debt. Currently, the company has debt of US$1.007bn
related to the Intergen acquisition. The sale is expected to release US$225m equity that the
company expects to use for its ongoing projects in India.

Impact
The sale has been in the cards for a long time and we believe it would provide necessary liquidity
to the Energy business, which would require huge investments within the next two years. The
reported consolidated net debt to equity as of the end of 1HFY11 was 1.20, which should ease to
1.11 after the transaction.

Valuation/catalyst
The company had made a total equity investment of about US$305m in Intergen via an initial
equity infusion, debt refinancing, interest payments and after reducing the dividend payment from
the subsidiary. The payment received for the equity is US$225m, so the company would book
some loss on the transaction. However, we do not believe this would have a material impact on
our valuation, and we see the sale as a positive for GMR because it would fund GMR’s growth
projects. Currently, the stock is trading at 1.03x P/B our FY12 book value forecast for the
company. We recommend Buy.