Bangalore-based energy and infrastructure major GMR Group was recently in the news for its large debt portfolio. Even as analysts point out the huge loan burden of Rs 33,600 crore, apart from the loss-ridden energy segment, as a major problem area for its growth, Group Chairman G M Rao rubbishes the criticism. The company has now entered into a major asset sale strategy that would help quickly ease cash flow, Rao told Sudheer Pal Singh and Surajeet Das Gupta in an exclusive interview.
Edited excerpts..
People are pointing out another slowdown in the economy. You are a part of various bodies representing the industry to the government. What is your view on the matter? Why do you think the foreign investor is not bullish on the Indian growth story anymore?
The foreign investor is not bullish on India because of the policies. They say that most of our policies send the message that we do not want foreign investment. They mention policies like General Anti Avoidance Rules (GAAR) on different forums. A negative message has gone. All the infrastructure companies are losing money. These companies have become “non-touchable” for banks. Some power companies are not even able to pay salaries. The situation is very serious. It has to be addressed very quickly. Foreign investment has to come. So, some of the policies have to be changed. Infrastructure is very important to maintain GDP growth. This requires huge debt and equity. Long-term debt at fixed interest rate is a problem. Access to funds and bonds is not available. Similarly, the local Initial Public Offer (IPO) market is dead.
Years ago, GMR entered into airports business as it believed future in power was uncertain. The Group also believed in keeping cash ready before entering a business. Today, power is still uncertain business and the Group is laden with too much debt. Has the philosophy helped?
We have achieved more than what we dreamt in 2005 when we began. We have successfully implemented the Hyderabad and Delhi airports. The Istambul airport was also stabilized by us a year ahead of schedule. Now we are working on the Maldives airport. In power, we had three plants then Today we have five. And another five are under construction. Three plants are likely to be operationalized this year. In highways, six highway projects are under operation and three are coming into operation this year. Now, to sustain such huge assets, instead of building on assets we are focusing more on building the institution. Today we have operations in 18 states and seven countries. When we began in 2005, the institutional building process was not started.
Is the strategy of not focusing on new assets linked to the high-debt profile of the Group?
High debt of GMR is a wrong perception. One has to take an overall view. Each project is a Special Purpose vehicle (SPV) and every SPV is servicing its debt. How can we take many projects without debt? It has been said that GMR’s debt has increased by 55 per cent in 5 years. But our revenue growth is also more than that. Debt ratio has to be seen in the light of number of projects that are running. Seven of our projects are coming in operation this year. We are not over-leveraged. Infrastructure business is different from manufacturing business. So, out debt is not high. Our debt ratio is 2:1 and below. Last 5-6 years we have raised Rs 11,000 crore of equity through IPO, QIP and Private Equity fund.
We review our assets every three months. As the economic situation is volatile, we have decided to maintain liquidity and adopt a strategy for either taking up only minority stake in future projects and operate by charging an Operation and maintenance fees or taking up majority stake in projects and selling them at good valuation. We are also working on consolidating the structure of the company. Ours is a very complex business. All these segments of roads, airports and power are very different from each other. We want to simplify it. This simplification will increase our valuation.
What is the ideal liquidity level the Group is targeting? And would this asset sell strategy work for even the existing projects?
Today we have a cash flow of Rs 3,000 crore and we are planning for Rs 10,000 crore liquidity in two years. Debt will come down and equity will increase owing to this strategy. This will remain in operation until the market volatility eases. The strategy would apply to international projects where we get good valuation. This may be in airports or power plants.
The other part of the strategy is to look for strategic investors in projects. We will look for established players in the fields of power and airports. So, both GMR and the investor will hold equity in the project but the investor will come with a premium. In fact, we are looking for a strategic partner for our sports business. We are looking for 49 per cent equity there.
Energy segment has emerged as a major problem area pulling down revenue for the Group. What has gone wrong?
The problems are only temporary in nature. We have resource problem today, including availability of gas and coal. But this should stabilize in the course of time. Gas availability has become a problem for our Andhra power plant. Now, an LNG terminal by GAIL is coming up at the east coast which should ramp up supply by 2013. LNG prices have also come down in the last two months. So future is bright for gas-based plants. Though, domestic availability may remain constrained for around two more years. Until then, it is a problem. On coal, the PLF of our plants is down at the moment. But we have coal linkage for our planned projects. Also, we have acquired 30 per cent stake in coal company PT Golden Energy Mines, a Sinar Mas Group company in Indonesia. We have another company PT BSL in Indonesia which will start operating by December this year. Two of our coal-based power plants are coming up for operation in October. The Chhatisgarh plant will come into operation next year.
But the government has threatened cancelling allocation for GMR’s captive coal mine Rampia linked to the Orissa plant for delay.
This is not because of our fault. All the partners of the block, including GMR, have completed our work. We are only waiting for the Prospecting License (PL) to be issued by the state government. After this, we will move forward with land acquisition.
What is your view on the CAG’s observation that government has extended financial benefits to captive coal mining companies. GMR’s Rampia block is also named in the auditor’s report.
Nobody will buy Rampia block today for even 5 per cent of its value. The allegation is all in the sky. Land has not been acquired. Exploration has not been done. We are not in the coal trading business. We are not planning to sell coal from our block to other countries for export. This will be used for generating power. If blocks are allocated on competitive bidding, we will charge the increased cost on consumer. We will not lose anything.
What is the growth GMR is targeting in its total power capacity?
Currently we have 810 Megawatt (MW) capacity. Of this, around 610 Mw is gas-based. We are targeting additional 1,600 Mw coal-based capacity by the end of this year. This includes 1,320 Mw from the Chhatisgarh plant and 800 Mw from a gas-based expansion plant. In addition, 2,900 Mw capacity will come on stream next year. Going forward we are expecting a mix of coal and gas based plants. We are also planning five hydro power plants.
How would the proposal to impose 21 per cent import duty on power equipment impact you?
GMR would not be impacted by the decision as we have already placed orders for our upcoming power plants on Chinese and Korean companies. But generally, if the equipment cost is increased by the government, the companies would pass it on to the consumer. Otherwise why would the bankers give their money for projects?
Are you planning to bid for the upcoming Ultra Mega Power Projects?
We will not bid. Our focus is only on maintaining liquidity and not building assets. It is better to keep sustaining what we have (projects) in our hands currently. We did not even bid for the four UMPPs which have already been awarded. We are here to make profit. UMPP space has very high competition and is not profitable
Do you see projects coming in the highway sector?
We see road projects coming. But we want to follow the same model of roping in strategic investors for new projects.