GMR Infra Exiting Power Project In Singapore

Bangalore-based infra and power major GMR Infrastructure is exiting its first independent power project in Singapore for a total sum of USD 650 million. As per media reports, GMR is expected to sell its entire 70% stake in this power project. According to us, the move is surprising as being an overseas project, it project remains insulated from domestic issues.

The reason the company has decided to sell its stake in the Singapore power project is to reduce its enormous debt. As per its 9MFY13 presentation, it has a debt of Rs 37681 crore and a debt-to-equity ratio of 3.54x.

Earlier, GMR was in troubled waters with regard to the USD 511 million Male airport project, which was scrapped by the Maldives government in December 2012. Later on, the Singapore court upheld the decision of the Maldives government. Thus, it seems that the company’s decision to sell its stake in the power project in Singapore may have been founded on the unfavourable business environment in Singapore.

The 800 MW Singapore-based power project is one of its total 7 under-construction projects which are nearly completed. The project will be operational by end of CY2013. The estimated cost of the project is about USD 937 million. While 70% stake is held by GMR Infra, the remaining 30% is held by Malaysian oil company Petronas. The project is based on LNG and has a 16-year fuel linkage with British Gas. The project has an equity component of 57% and debt component of 43%.

In India, GMR currently has four operational power projects with a capacity of 833 MW. All of these have seen very low plant load factors (PLFs) between 15%-30% in the first nine months of the current fiscal due to lower fuel availability.

GMR's peer, Lanco Infra is also expected to sell its 3 overseas power projects due to its high debt. The lower cash flows from the current projects may further impel it to sell stake in the domestic projects too, but that will be a bold statement at the moment.

If the company is successful in selling the power project at USD 650 million, it would then be able to reduce its debt by Rs 6575 crore, which will also lower its debt-to-equity ratio to 3.2x. However, the Male setback, its exit from some highway projects and the latest move of selling its overseas power project may not prove to be positive with regard to its future revenues. We would not advise entering the counter now as it has turned highly volatile in the last 3 months.