Dealing with debt: GMR builds cash pile on divestment plank

In a four-part series, BS finds out how these companies overcame the hump, though the road to recovery is still precarious

At a time when several firms are facing insolvency, some have been able to restructure their debt. In a four-part series, starting with GMR, Business Standard finds out how these companies overcame the hump, though the road to recovery is still precarious

On November 8, 2016, the GMR Group signed an agreement with the Goa government for developing an international airport. The event was preceded by months of speculation that the group would divest stake in its airport portfolio. But, as it turned out, GMR had further entrenched itself in this business, 10 years after it started operating Delhi International Airport Ltd (DIAL).

A reason that GMR Infrastructure has been able to embark on Rs 8,400-crore capital expenditure in its airport business lies in its “asset light and asset right” strategy that started in 2012. It helped the group reduce gross debt by 48 per cent and net debt by more than half to Rs 14,308 crore at the end of March 2017, from Rs 31,887 crore in 2015-16. 

“Having focused on reduction of debt, it is not that the group lost sight of the growth story. The GMR airport segment had grown substantially last year, with profit increasing by Rs 166 crore to Rs 869 crore. This is the first time that both our airports (Delhi and Hyderabad) have proposed a substantial dividend to GMR Airport Ltd,” said Madhu Terdal, group chief financial officer, GMR. 

According to Terdal, GMR was one of the first companies to work with lenders on “unstable and stressed” assets and took steps towards long-term solutions based on the Reserve Bank of India guidelines. In the energy segment, too, a small turnaround was achieved, with GMR Warora Energy achieving a net profit of Rs 143 crore for the first time in the quarter ended June 2017.

At Rs 42,410 crore, the group’s gross debt peaked in 2014-15, primarily due to expansion in airport and energy segments. Of total gross debt, airport debt is Rs 8,300 crore (31 per cent), corporate debt is Rs  3,900 crore (25 per cent), highways debt is Rs 3,300 crore (21 per cent), energy assets debt at Rs 3,000 crore (20 per cent), and another Rs 1,300 crore (3 per cent) from other segments.

What made debt reduction possible for GMR was sell-off of eight projects that helped it raise Rs 11,700 crore over four years. The group went for statutory debt restructuring (SDR) in its Chhattisgarh and Rajahmundry (Andhra Pradesh) power projects, leading to reduction of Rs 12,600 crore of debt. Lenders took over 52 per cent in the coal-based Chhattisgarh plant after converting debt of Rs 2,992 crore into equity of a total debt of Rs 8,800 crore, inclusive of accrued interest. In the gas-based Rajahmundry plant, lenders now hold 55 per cent after converting Rs 1,414 crore debt into equity, of a total debt of Rs 3,800 crore. The group divested stake in the airport segment, too. The infrastructure major sold off 40 per cent in Turkey’s Istanbul Sabiha Gokçen International Airport to its joint venture, partner, Malaysia Airport Holdings, for ^225 million  ($306 million or Rs 1,896 crore) in 2013. It offloaded a power plant in Singapore and coal mines in South Africa. According to a GMR spokesperson, the total capital released through asset monetisation in the past 12 months is Rs 2,400 crore. 

Airport revenue was also helped by the arbitration award for Maldives Airport in October 2016, under which it received compensation of $270 million (Rs 1,800 crore). In 2012, the Maldives government ousted GMR from Male International Airport Ltd. The compensation covered the debt, equity invested in the project and a return of 17 per cent, beside termination payments and legal costs. 

While the entire amount raised through divestment has been utilised for debt servicing, the focus has moved from asset growth to cash flow generation. According to Terdal, GMR was one of the first companies to work with the lenders, for unstable and stressed assets, taking effective steps towards long-term solutions. He said the leverage ratios of the group had significantly improved over 2016-17. The net debt to earnings ratio improved to 4.3, against 10.2 the previous year. And, the net debt to equity ratio improved to 1.6. 

According to IDFC Securities, strategic capital infusion of $300 million by Malaysia-based Tenaga in GMR Energy and the two SDRs are positives for the group. “Profitability of the two operating power plants of EMCO and Kamalanga has improved due to favourable rate orders and should improve further if led by higher plant loan factors,” it said.  The 90 per cent cut in aero tariffs at DIAL, however, would be a significant drag on earnings, though unlikely to impact DIAL’s debt service ability, given its cash balance of Rs 31,500 crore and since there is no principal repayment due till 2022, the report added. 

Though debt reduction and strong growth in air traffic has helped the group, corporate debt of Rs 4,400 crore, ex-foreign currency convertible bonds of Rs 2,000 crore are negatives, said the report. “It is very important to underline the fact that keeping in policy objective of the central bank and the central government, GMR has made a significant effort to move away from its dependence on bank finance to the international market as well as of the bond markets,” Terdal told analysts after the quarter ended June.

According to a spokesperson, the group with interest in five airports is now pursuing growth strategy in this segment, while consolidating the energy business. It intends to divest the highways business.

 

 

Next:  DLF building on debt-free ambition