GMR Sells Stake In South African Coal Mines

After GMR sold its stake in the Singapore power plant, it has once again gone ahead with selling coal assets in South Africa. The company through its subsidiary GMR Energy has sold its entire 55.84% stake in the Homeland Energy Group which owns Kendal mines and Eloff mines in South Africa. Business Standard has said that the company will use these funds to pay off the bank loans taken from ICICI bank and to fulfil the working capital requirements.

Kendal mines are currently operational while Eloff are under exploration. As a part of this deal, HEG has sold the stake in coal mines as it found that the capital cost to explore and start production from these mines would be higher. Besides, it was also required to invest in logistics and infrastructure which would make in uneconomical. The Kendel mines currently have a capacity of 1.8 million tones. The coal from these mines is being sold to the domestic power companies. The reason for selling its stake in these mines is not clear but the probable reason could be related to the requirement of investment in infrastructure.

The debt-ridden GMR has adopted an Asset Light – Asset Right model under which it is selling its overseas assets. In the last month, it sold its entire stake in a power plant in Singapore for USD 660 million. Besides, it has already exited a NHAI road project and according to some news articles, it is also in the process of listing of its business trust on the Singapore stock exchange.

Currently, GMR has a debt of Rs 37,000 crore and the management expects to reduce it by Rs 10,000 crore by the next financial year. This will improve the financial leverage position of the company but investors are concerned on the dimming cash flows from the power business. For the third quarter of the current fiscal, its loss has become wider than the same quarter last year. The power business contributed to 72% of the total losses in the quarter indicating that the recovery in the business is the key to overall profits of the company. The company is operating power plants at a very low PLFS due to a gas shortage.

The stock has also remained very volatile in this calendar year. Considering the negative sentiment on the stock, one should avoid the stock at the moment.