GMR wants to sell off Singapore power plant but company denies stake sale talks

 GMR has decided to exit its first independent power project (IPP) outside India by selling the entire 70% stake in its Singapore plant.


MUMBAI: Cash-strapped infrastructure conglomerate GMR has decided to exit its first independent power project (IPP) outside India by selling the entire 70% stake in its Singapore plant, popularly known as the Island Power Project.

With GMR expecting to raise over $650 million through the sale, the move will generate liquidity and help pare its consolidated group net debt of Rs 37,681 crore as of December 2012, which amounts to a gearing of 3.5 times.

The Bangalore-headquartered group is currently in advanced negotiations with a group of strategic South-East Asian power and utility majors, and is hoping to conclude a deal in the next few months, said multiple sources aware of the development.

GMR officials, however, denied any plans to sell. "We deny any such stake sale in the 800-mw 
GMR Energy Singapore Pte Ltd," said a company spokesperson, responding to an email query from ET.

The 800-mw combined cycle gas turbine power plant located at Singapore's Jurong Island - built at an estimated cost of $1 billion with a 57:43 debt-equity ratio - is in its final stages of completion, and is likely to begin commercial operations by December this year.

Rich Inheritance

The project is housed under GMR Energy (Singapore) Pte Ltd, a subsidiary of 
GMR Infrastructure BSE 1.38 %. In 2011, Petronas International Corporation, an arm of Malaysian state-run oil company Petronas, had bought a 30% stake in the project for $38.5 million (Rs 209 crore) and become a joint sponsor.

GMR inherited the entire Singapore project for a paltry $10 million in 2009 as part of its $1.1-billion global acquisition of US-based Intergen NV in 2008. A year later, when GMR sold its 50% stake in the global utility company to a consortium led by China Huaneng Group, it retained this asset, believed by many, to be the crown jewel in its power portfolio.

GMR has also been in active discussions with Singaporean companies such as Keppel Energy - a part of the diversified 
Keppel Corporation - and Sembcorp Industries - a leading energy, water and marine group operating across six continents -for the Jurong Island plant, said one of the sources mentioned above. A Hong Kong-based private equity fund is also believed to have been approached. "The potential buyer will be a strategic player from South-East Asia. GMR has been selectively reaching out to them," added an official on condition of anonymity as the talks are still private.

While Temasek-backed Sembcorp has over 5,800 mw of gross power capacity and has been responsible for Singapore's first privately developed IPP, Keppel Energy has been developing, owning and operating power plants in diverse geographies, including Singapore, Brazil, China, the Philippines, Ecuador and Nicaragua. Interestingly, Petronas, which has the right of first refusal in the project, is unlikely to exercise the option to increase its stake.

Mails sent to Keppel, Sembcorp and Petronas did not generate a response till the time of going to press.

"GMR has been scouting for investors, but now that the project is closer to completion, it is hopeful of getting a better valuation and sealing the deal," said a 
power sector consultant.

The project, once plagued with project-related delays and fuel linkages, has secured 
LNG supplies from BG for 16 years. "It's a modern plant that is ready to fire with assured fuel linkages. And being in a stable market like Singapore with a robust price discovery mechanism for both retail and wholesale customers, GMR can expect to seek a significant premium," said a power analyst with a leading foreign brokerage firm.

All the power generated locally is pooled into a common National Electricity Market in the island city. Depending on the efficiencies of generation, the actual pricing of the power is realised. Modern facilities like the Jurong Island Power project is among the top three in the merit list. GMR has four operational power assets and around 12 are at various stages of development. Most of the Indian projects, however, are stuck due to disruptions in coal or natural gas supplies. Its international power plants are in Nepal and Singapore.