Sale of GMR Energy (Singapore) Positive For GIL

As anticipated by BMI , India-based construction company GMR Infrastructure (GIL) is to sell its stake in GMR Energy (Singapore) , the subsidiary that owns the Island Power gas power plant project . Following the sale, likely brought about by GIL's need for funds , FPM Power Holdings will own a 70% stake in the Island Power project .

The sale is expected to cost FPM Power Holdings SGD660mn (US$530mn) , with GIL gaining a profit of INR13.6bn (US$250mn) . With the sale, FPM Power Holdings , a joint venture owned by Philippines' Manila Electric (Meralco) and Hong Kong-listed First Pacific , will own a 70% stake in the Island Power project, with Malaysia's Petronas Power owning the remaining 30%. The Island Power gas power plant project involves the construction of a 800-megawatt (MW) combined cycle gas turbine power plant on Jurong Island. At present, the power plant is 96% completed and is scheduled to be operational by end-2013.

Likely To Face Debt Repayment Issues
GMR Infrastructure - Net Profit (LHS) And Net Debt (RHS), INRmn

T he sale is in line with our view. We had previously stated that there was a strong likelihood that GMR Energy Singapore would be sold owing to GIL's severe need of funds to meet debt repayments , especially as a sizeable portion of it is due between 2013-2015 ( see our online service, November 23 2012, ' GMR Most Likely To Sell Singapore Asset ' ) .

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 also highlight that s everal setbacks in its main business areas - airport, toll roads and power plant operations - are weighing on the company's performance ( see our online service, November 12 2012, 'Coal Shortages Not Resolved Yet', January 10 2013, 'GMR Gives Up Ahmedabad-Kishangarh Expressway: Highlights Investor Imprudence', and December 19 2012, 'Maldives Misadventure A Threat To GMR's Financials' ). News of the sale was thus welcomed by the market, with GMR Infrastructure rising more than 4% in early trade on Tuesday.

This article is tagged to:
Sector: Infrastructure
Geography: Singapore, Singapore, India, Singapore, Singapore

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