The Banking and Strategy Initiative

Chillin' out till it needs to be funded

Temasek follows up with a GMR deal

It was good to see Temasek simply hurrying into all scoped/discovered opportunities discovered in the 2007 boom. As is now Temasek’s habit in India PE circles, WSJ broke the story tonight. This time it is the QIP baddy, GMR Infrastructure. After GMR consolidated its various road projects, power projects and made public its loose holding structure for Power, Road and aviation projects, it could not get funds in the tight market conditions back in June 2009 and postponed its QIP. Now it needs to hold on and consolidate based on this Temasek deal as and when it comes through. GMR has emerged as a leader in aviation infrastructure space wiht commissioned projects in Hyderabad, Delhi and Turkey. Despite the recent L&T stake sale to GVK in Bangalore ( that probably GMR should also have bid) and with the opening of more than 20 mid tier airport projects plus another 5-6 metro airport modernisation projects, GMR cannot be choosy but also cannot afford to ive away the farm. Each Aviation project Capital requirement will run into 2-3K Crores that’s a $500m each time. Even if it foots only 10-15% of its equity, it crrently cannot affor to take any of its earler projects public and the infrastructure spending requirement is NOW.

Singapore state investment firm Temasek Holdings is in talks to buy a stake worth $170 million in GMR Infrastructure Ltd.’s energy unit, a person familiar with the situation said Wednesday. “Temasek is one of around five companies that have shown interest in GMR Energy,” the person, who declined to be named, said. “They’ve been talking since last year.”

GMR Infrastructure, the listed unit of GMR Group, has said in October it is planning to sell a 10% to 15% stake in the energy unit and may offer shares through a private placement and an initial public offering.

GMR group Chief Financial Officer A Subba Rao declined to comment on a potential deal with Temasek, saying it is not the company’s policy to reveal any details on a deal until it reaches a definitive stage.

But Mr. Subba Rao said GMR group is seeking to raise capital to meet the energy unit’s expansion needs.

“For the energy division, we have already tied up funds for 18 months, and are now looking to raise around 15 billion rupees ($328.2 million) for the remaining period, in tranches,” said Mr. Subba Rao.

India’s power sector is seeing a flurry of plant constructions as the world’s second-fastest growing economy is hungry for electricity to run its factories and light its homes. Demand far outstrips supply of power, leading to frequent blackouts in urban and rural areas. via india WSJ

Also, GMR must try and not give in to temptation to avoid all highway and roads projects at this juncture as it is required in the larger scheme of a PPP and Privately financed infrastrcture model for India. India’s budgeted $500m will not be enough and IDFC project Equity, REC and even PTC are not big enough to support the larger financing requirement. Even the $4.3 billion from WB will finally only start a very few quality projects.

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