GMR to raise $350 million via overseas bonds

Mumbai: Debt-strapped infrastructure developer GMR Group plans to raise $350 million (around Rs.2,100 crore) by selling bonds to foreign investors and will use the money to refinance the debt of its subsidiary Delhi International Airport Ltd, or DIAL, a top company executive said.

GMR’s plan comes even as several companies are taking the overseas bonds route to raise money, and their success is a sign that investor appetite for Indian paper has returned.

Madhu Terdal, group chief financial officer at GMR, said the foreign bonds would have a tenure of five to 10 years.

DIAL, which runs New Delhi’s Indira Gandhi International Airport, has a debt of around Rs.5,800 crore.

It reported a net profit of Rs.217.1 crore for the year ended 31 March, compared with a Rs.38.30 crore profit a year ago.

GMR has been on a fund-raising spree.

Its bond offering comes within a month of a share sale to financial investors.

Earlier this month, GMR raised $250 million through a qualified institutional placement (QIP) to pare its debt which stood at Rs.33,599.28 crore as on 31 March 2014.

The terms of such a sale will be easy on GMR, said bankers.

Indeed, most higher yield bonds that are being issued right now are covenant-lite, which means that the companies do not have to report and maintain loan-to-value and gearing ratios and Ebitda (earnings before interest, taxes, depreciation and amortization).

Loan-to-value is the ratio of the loan to the value of the underlying asset; gearing is simply the debt-to-equity ratio. Banks in India have multiple covenants attached when they lend money. A covenant-lite structure, though risky for investors, provides firms an alternative and easier route to tap funds.

Terdal of GMR said the pricing of the bonds is yet to be finalized.

everal “non-AAA” rated companies have recently raised funds through foreign bonds, a trend that is likely to continue, according to Randhir Singh, managing director and India head of financing at Deutsche Bank AG. GMR Infrastructure Ltd’s long-term debt has been rated “BBB+” by Credit Analysis and Research Ltd (CARE), a credit rating firm.

Last week, Rolta India Ltd raised $300 million through senior notes (a type of bond).

Tata Steel Ltd is in the process of raising a large sum through overseas bonds. Tata Steel’s long-term debt has been rated “AA+” and Rolta’s “A+”. None of these companies have “AAA” rating for long-term debt and, consequently, their bond issues are higher yield ones.

Higher yield means that the coupon or interest payout by the firm will be higher on account of a lower credit rating.

“In terms of coupon, ‘BB+’ and ‘BBB’ rated firms will command 350-400 basis points (bps) higher than ‘AAA’ rated ones,” said Ajay Saraf, executive director at ICICI Securities Ltd. One basis point is one-hundredth of a percentage point and ‘AAA’ stands for the highest credit rating.

With an increase in risk appetite for high-yield bonds, even “non-AAA” rated firms will benefit. Bonds with a rating below “BB+” are considered high-yield ones.

The relaxed repayment structure that such bond sales now come with is a result of improved investor sentiment—a recent change on account of a new business-friendly government taking over the reins in New Delhi.

“There is a lot of optimism around India right now and investors are keen to participate in India high-yields. Many issuers who were earlier hesitant are now quite willing to access the international bond market,” said Singh.

Delayed projects, a slowing economy, and imprudent financial planning have left most infrastructure developers in India loaded with debt. Many of them have, in recent months, sought to reduce the debt on their books, and Saraf of ICICI Securities said this is a good move and a positive signal for investors.

And “with investors expecting the India growth story returning to track, the high-yield issues will see sufficient demand from investors”, he added.

India’s economy grew at below 5% in 2013-14 and 2012-13, but it could expand by as much as 5.9% this year, the government said.

DIAL is a joint venture between the GMR Group, Airports Authority of India, Fraport AG and Malaysia Airports Holdings Bhd. It has been given the mandate to finance, design, build, operate and maintain the Delhi airport for 30 years with an option to extend it by another 30 years.

The total passenger traffic at Delhi airport in fiscal 2014 grew 7% to 36.88 million; international traffic grew 10% to 12.68 million.

Besides Delhi, GMR has also developed and commissioned the greenfield international airport in Hyderabad and is part of a consortium that upgraded and is operating Istanbul’s Sabiha Gökçen International Airport.