GMR raises Rs 2,000 cr from Kuwait Investment

GMR raises Rs 2,000 cr from Kuwait Investment

In the first such bond issue under the new Reserve Bank of India (RBI) guidelines notified on Monday, GMR Infrastructure will get Rs 2,000 crore ($300 million) from Kuwait Investment Authority (KIA). It is the largest bilateral investment between India and the West Asian country in recent times.

The two sides signed a definitive agreement on Tuesday under which the Kuwaiti authority would subscribe to a 60-year-long Foreign Currency Convertible Bond (FCCB) due 2075 to be issued by GMR Infrastructure, the flagship company of the GMR Group.

GMR’s FCCB issuance is the longest tenor convertible issuance out of India and will have several “equity-like” features such as long tenor, unsecured and subordinated status and mandatory conversion, said a company statement.

Such features are generally seen in perpetual-type issuances. So far, the longest tenor bonds have been issued by Reliance Industries Ltd (99 years) and the Tatas but they were rupee bonds.

The proceeds from the FCCB would be primarily used to repay certain outstanding obligations of GMR and its subsidiaries. Speaking to Business Standard, Madhu Terdal, group, chief financial officer, GMR, said the group debt would stand reduced to Rs 4,900 crore post the bond issuance from Rs 6,900 crore in September 2015 and Rs 7,700 crore in December 2014. “The entire money will come in one tranche. It is more like equity than debt since the company can forcibly convert it into equity any time after three years whenever it reaches the threshold valuation,” he added.

In a press statement issued to announce the transaction, G M Rao, group chairman, GMR Group, said, “This is the largest bilateral investment of Kuwait Investment Authority in India. This investment shows confidence of sovereign investors in the long-term policies being implemented by the government of India, particularly in the infrastructure space.”

KIA, the sovereign wealth fund of the Kuwaiti government, manages and administers the General Reserve Fund (GRF), and the assets of the Future Generations Fund (FGF), as well as any other funds entrusted to it by the minister of finance for and on behalf of the State of Kuwait. “We have long admired GMR as a formidable infrastructure developer in India and believe that it is well positioned to play an important role in India, as the country aggressively expands its infrastructure footprint in the coming years,” said Farouq Bastaki, KIA.

Kiran Kumar Grandhi, managing director, GMR, said, “It will help the company to meet the challenges being faced by the sector and deleverage our debt exposure. This also represents one more milestone in the GMR’s turnaround journey and strengthens our balance sheet and prepares the groundwork for our next phase of profitable growth.”

According to Apurva Shah, managing director, investment banking, Deutsche Bank, GMR, will emerge stronger after the transaction than before. Given only 7.5 per cent USD coupon servicing, there will be significant reduction in cash interest and debt service outflow, even if INR depreciates against USD, until the bonds are converted.

Shah said this would also be the longest tenor convert in Asia Pacific. "Importantly, this will result in a significant reduction in the corporate level debt at GMR and with operating company debt largely becoming self sustaining."

Deutsche Equities India acted as the financial advisor to GMR and Citigroup Global Markets India was the financial advisor to KIA.

The conversion price of Rs 18 represents approximately 30 per cent premium to the three months average share price of GMR. The group has interests in airport, energy, transportation and urban infrastructure with 10 operational power generation projects out of 15 and five under development. It has nine operating road assets and a double rail track line between Mughalsarai-New Bhaupur (Kanpur) of Eastern Dedicated Freight Corridor under development.

The group developed and operates India’s busiest and currently World’s No.1 Indira Gandhi International Airport in New Delhi and greenfield Rajiv Gandhi international airport at Hyderabad.

GMR in partnership with Megawide Construction Corporation is developing Mactan Cebu International Airport (MCIA) in Philippines. The group is also developing two special investment regions at Krishnagiri and Kakinada and India’s largest Smart Airport City near Hyderabad.