GMR Energy (Singapore), the Singaporean subsidiary of India-based construction company GMR Infrastructure (GIL) is set to complete the construction of its 800-megawatt (MW) combined cycle gas turbine power plant on Jurong Island by Q4 2013. However, BMI believes that it is unlikely to derive the benefits from the plant's completion as it would most likely need to sell off the asset to stay afloat.
The SGD1.2bn (US$980mn) power plant project is about 90% completed and is scheduled to start operations in Q4 2013, according to Yu Tat Ming, CEO of GMR Energy Singapore (cited by the Business Times). However, a media report from the Business Standard in early-November said that GIL is thinking of selling its 70% stake in the Singapore asset, along with its 55% stake in Homeland Energy, a Canadian mining company that owns coal mines in South Africa. GIL is also considering merging two of its coal mining companies in Indonesia, thereby reducing its stakes in both assets. According to the report, this is part of the company's strategy (since early-2012) to go 'asset-light'.
We believe there is a strong likelihood that GMR Energy Singapore would be sold. This is because GIL is in severe need of funds to meet debt repayments. Not only is the company still suffering heavy losses from its Indian operations - GIL has been in the red for eight successive quarters- but its debt levels also continue to be very high. We believe that GIL's net debt at the end of September 2012 was higher than the INR310bn at end-June 2012.
|Likely To Face Debt Repayment Issues|
|GMR Infrastructure - Net Profit (LHS) And Net Debt (RHS), INRmn|
Furthermore, we believe it is very likely that GIL would require further capital injections to sustain its businesses in the short-term. While we had previously stated in early-2012 that GMR's financial outlook will improve as we move into FY2012/13 (April-March), a host of factors have conspired to foil this view ( see our online service, February 13 2012, 'GMR's Fortunes To Improve Following A Poor 2011').
Problems In The Indian Power Sector: The Indian power sector continues to suffer from construction delays and fuel shortages ( see our online service, November 07 2012, 'Fraport's Push For Pullout Highlights Declining Confidence'). We believe that GIL is no exception, with the company currently operating three thermal power plants and developing eight power plants in India. Its largest coal-fired power plant, the 1400MW Kamalanga plant in Orissa state, is scheduled to come on-stream by end-2012 and is reliant on domestic coal production (which is already experiencing a shortage) to meet its coal demand.
Delhi Airport Troubles: The Delhi International Airport, GIL's main airport asset, is set to face a decline in profitability due to the removal of airport fees by the Indian government. Additionally, it looks increasingly likely that GIL will need to purchase additional equity to maintain its stakes in the Delhi airport ( see our online service, November 7, 'Fraport's Push For Pullout Highlights Declining Confidence').
Maldives Airport Troubles: There are growing concerns that GMR's concession to upgrade and manage the Ibrahim Nasir International Airport in the Maldives could be cancelled by the current government, which took power in February 2012. The US$500mn project, signed with the government of former Maldives President Mohammed Nasheed in 2010, is facing protests from the current government because the project was signed despite opposition from the Maldives parliament. At present, GMR is embroiled in legal proceedings with the Maldives government over the project, forcing it to suspend upgrading works at the airport. This delay could lead to cost overruns or worst, a write-off of its investment in the airport should the concession be cancelled.
GMR's Singapore Asset Desirable
Should GMR chooses to sell GMR Energy Singapore, we believe that there could be quite a number of interested parties. Compared to the Asia-Pacific region, Singapore has a well-regulated power market, and its electricity consumption is set to grow at an average rate of 3.0% per annum over the next decade. This makes it a relatively safe investment with stable returns.
|Safe And Stable|
|Singapore - Net Electricity Consumption Forecasts|
While there are numerous investors interested in GMR Energy Singapore, we highlight that Petronas Power, a subsidiary of Malaysian state-owned oil company Petronas, had only acquired a 30% stake in GMR Energy Singapore in December 2011. As such, it is possible that they might be interested in acquiring the remaining 70%. In addition, Chinese power producer, Huaneng, could be interested in GMR Energy Singapore. The company owns Tuas Power, one of the largest gas-based power producers in Singapore, and could be interested in boosting its market share in Singapore. Both GIL and Huaneng should be on familiar terms as Huaneng had previously made one of its largest overseas acquisition through GIL, acquiring power utility InterGen from the latter in late-2010 ( see our online service, August 20 2010, 'InterGen Acquisition Satisfies All Parties').