Valued at $1 bn, the deal is considered a ‘conservative’ bid
Ontario Teachers’ Pension Plan (OTPP), Canada’s largest single-profession pension fund, with $96.4 billion in net assets, has offered to buy GMR Infrastructure out of InterGen for about $1 billion, according to sources involved in the negotiations.
While GMR Infra owns 50 per cent in InterGen, OTPP holds the rest. In October 2008, GMR Infra had acquired the stake in InterGen from AIG Highstar Capital II, L P and affiliates for $1.1 billion.
GMR has appointed Bank of America-Merrill Lynch to explore options and potential buyers for its stake in the power generation company. InterGen has 12 facilities across the UK, the Netherlands, Mexico, Australia and Philippines, with a generation capacity of close to 8,100 mega watts. InterGen is planning to expand in Asia, North America and the UK, and estimates it will make $600 million in earnings before interest, taxation, depreciation and amortization for 2010, according to people familiar with the matter.
GMR management could not be reached for a comment, despite several attempts. However, GMR CFO A Subba Rao had told analysts yesterday, “We have received several unsolicited calls (for buying the stake). We have taken no decision as yet.” According to him, the company has so far invested about $837 million on InterGen.
OTPP’s spokesperson Deborah Allan was also unavailable for comment.
According to the sources, who did not want to named, OTPP’s bid may still be a preliminary one and bids from a couple of more private equity groups and foreign strategic players are expected.
GMR had been non-committal so far to the offer, as it came at a discount, and was evaluating all options, the sources said. OTPP seems to have pointed out depressed market conditions, delays in projects and a modest growth outlook as their rationale for what is being seen as a “conservative” bid.
The InterGen stake buy was a highly-leveraged one, as GMR raised $937 million short-term debt to finance the deal through the overseas branches of several Indian banks, including Axis Bank, Canara Bank, Bank of India and Bank of Baroda.
Late last month, GMR had sought to refinance a debt of $737 million from a consortium of banks to pay earlier lenders. There is a two-year moratorium on repayment of the refinanced debt and the repayment will begin in the third year and would continue till the fifth year.
Despite the high profile nature of the acquisition, GMR did not manage to make much of the acquisition and even the dividends received so far from InterGen, at $32.5 million, has been lower than the interest costs it has had to bear on the acquisition debt.
“OTPP will have the automatic first right of refusal. There will be others keen on InterGen, too. The deal closure is still some time away. In any case, you will need clearances from different countries and their regulatory bodies,” said one of the company sources.
Investment bankers in the know said at least one more foreign strategic bidder was very likely and talks had simultaneously advanced with them. The identity of that bidder could not be verified.
Analysts feel if GMR indeed exits InterGen, it will be beneficial to them. “Nobody is complaining about the assets. They have long-term growth potential and the expansion plans are also robust. But GMR’s foreign equity investors would rather see them focus on India, where the growth opportunities is a lot more,” said a banker, who has lending relationships with them.
Agrees Prakash Diwan, head-institutional equities, Networth Stock Broking. “An exit will be good, as GMR can generate money for their core activities. They can use cash flows to repay debt and make themselves leaner and lighter company,” he said. Besides all projects are of long gestation. “They have a lot of capital locked in many projects and have raised long-term finance, which is not very healthy. As their projects grow, their debt burden also grows,” Diwan added.
