Canada’s Brookfield Asset Management on Friday made its first major investment in the Indian infrastructure space, by buying six road and three power projects from Gammon Infrastructure Projects (GIPL), the infrastructure arm of debt-laden Gammon India.
A consortium comprising Brookfield and Core Infrastructure India Fund – BIF India Holdings – will buy the projects, six of which are operational. The deal involves part cash payment, certain milestone-linked payments, and take over of debt in the special purpose vehicles operating these assets.
The deal includes an immediate cash payment of Rs 563 crore and future undisclosed sums based on certain performance targets being met. For instance, advances to GIPL of R285 crore would be waived. The company may also get R100 crore of additional cash inflow upon crystallisation of certain milestones in the future, so all in all the cash flow on account of this transaction would be around R948 crore. Further, 75% of past contingent receivables on these projects may also be received by the company when realised. Apart from the six operational assets which have been sold, there’s one which is under expansion and two under development.
The outstanding debt as on March 31, 2015, for these projects stood at R1,718 crore. Post the transaction, the consolidated debt of GIPL will stand reduced from R3,947 crore to R2,229 crore, the firm said.
The total project cost at completion of the asset basket is estimated to be R6,750 crore, of which R3,097 crore has been capitalised till March 31, 2015, the statement said.
Brookfield, a global alternative asset manager, has over $200 billion in assets under management, focusing on infrastructure, renewable energy, private equity and property. CIIF is an India focused infrastructure fund managed by the Singapore branch of Kotak Mahindra (UK). Ambit Corporate Finance acted as financial advisor to GIPL on the transaction.
The company’s board also recommended divestment of 50% shareholding of Vizag Seaport for a consideration of Rs 62.5 crore to Lastin Infrastructure Projects, an affiliate of an existing shareholder, Lastin Group.
K K Mohanty, managing director, Gammon Infrastructure, said these deals will now make GIPL “net cash surplus” company. “We will utilise the funds to bag projects in roads, ports, renewable energy, railways and opportunities in development of smart cities. We will also look at buying secondary assets as and when an opportunity arises”.
Mohanty clarified that as the debt at the holding company level is not “high” and stands at only around Rs 90 crore, the realisations from the transaction will not go towards any debt repayments. However, at the consolidated level, the deal is expected to improve the gearing of company from more than 4x to around 2x going forward, he said.
As for the valuations, Mohanty said, that 2-3 years back the expectation was much higher, but the company is satisfied with the valuation achieved in a challenging operating environment. “As an investor, one can never be happy with the valuations. But given the current operating environment for infrastructure sector, where traffic volumes have reduced dramatically in the last 2-3 years, projections have been missed, whole sale price index is negative, it is a win-win transaction,” he said.
While there is no fire sale of assets as yet, the trend of Indian infrastructure companies, exiting operational assets, especially the ones under stress to service debt, is on the rise. In the last one year, road developers alone are understood to have made a combined Rs 800 crore from such sales. HCC, Madhucon Projects, and earlier GMR Infrastructure, IVRCL have sold road assets. In power sector, Jaiprakash Power Venture Ltd completed the sale of two hydropower assets to JSW Energy for Rs 9,700 crore in February. In April, Lanco Infratech completed the sale of its Udupi Power Plant to Adani Power, in a deal that pegs the enterprise value of the project at Rs 6,300 crore. In November last year, Gautam Thapar-led Avantha Group said it has signed an agreement to sell Korba West Power Co. Ltd (KWPCL) unit to Adani Power Ltd for Rs 4,200 crore.