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GVK Energy's private equity investors might get stake in parent company GVK Power & Infrastructure, as part of the group's ongoing restructuring exercise. Top officials say the restructuring has become necessary after the energy business proved to be a non-starter, eroding the investment made by three private equity (PE) players.
GVK Energy had attracted two rounds of PE investment in the second half of 2010. While 3i India Infrastructure Fund invested $182 million in the first round, Actis and Singapore's GIC invested $80 million in the second round. The total investment in dollar terms at the time of the investment was around Rs 1,200 crore for about 20 per cent stake.
"The investment made by the PE players has been almost fully eroded. If they get shares in the holding company, they will get some play in the other businesses of the company. Hence, this restructuring is being done," says a top company official. However, GVK Energy responded to an emailed query saying it did not comment on market speculation.
GVK Power & Infrastructure, the parent company, has presence across the infrastructure sector in roads and airports, in addition to power.
"We are working closely with some of our portfolio firms. We can either treat them as bad loans and write them off and increase our NPAs (non-performing assets) or work with clients and see how we can restructure it," said a senior official from a private bank with exposure to the infrastructure sector. He added that though the investment bank and NBFC (non-banking financial company) of his bank had different roles than the corporate banking arm, all three were working together to see how the investments made by their investment banking arm could be restructured.
At the time of investment, GVK Energy was expected to add 2,800-Mw capacity across fuel sources such as gas and coal, and two hydro power projects. Owing to a lack of resolution of natural gas availability from the Krishna Godavari basin, the company had cancelled plans to add 1,600 Mw of gas capacity. The supply of gas to its commissioned power plants also dried up. The company currently generates around 900 Mw from its Punjab and Andhra Pradesh-based power plants.
GVK Power & Infrastructure's consolidated net loss for the quarter ended December 31, 2013 was Rs 45.43 crore as against a net loss of Rs 57 crore in the corresponding quarter of the previous year.
The Bangalore-based GMR also undertook a similar restructuring exercise recently, whereby its PE investors, Singapore's Temasek and IDFC, were given stakes in the parent company. These investors were allotted compulsorily convertible shares worth Rs 1,136 crore in the parent company. Their residual stake in the energy business will remain.
The deals signed by both these companies were known to have come with performance riders. "According to the deals, both GMR and GVK had guaranteed a certain amount of equity returns, the time of which was supposed to end in 2014. If they were unable to meet their targets, the promoters were liable to pay. These deals were negotiated well by the PE players," says a consultant who was involved with the GVK deal.
The PE players had hoped to exit the companies, as both had planned initial public offerings (IPOs) of their energy businesses within two years of the investment. However, those plans did not go through, as the infrastructure sector suffered due to factors such as a lack of coal supply and bad financial health of state power distribution companies, which led to payment crises for many power generators.
PE players, however, feel that this will not be a trend for deals across the infrastructure industry. "It will be on a case-to-case basis, because all companies do not have the assets to back such arrangements. Besides, players such as GMR and GVK would have, in the fine print, cross-leveraged some of their assets when the deals were being signed," says a senior executive of a PE fund.
LOOKING TO RE-ENERGISE
* PE investors yet to exit after 3 years
* Proposed IPO has got delayed
* Value of investment eroded as infra company valuation fell
* Gas capacity under scanner after fuel supply cut off
* Company currently restructuring loans for gas plants
