GMR plans to demerge its airport and power verticals

Hyderabad based GMR Infrastructure will soon take a decision on demerging its company into two dedicated verticals – namely airports and power. Its other business interests such as SEZ, mining and highways businesses could be divested in next few months post the demerger of the two key segments.

With the proposed move, the company hopes of a turnaround in its balance sheet, if its plan gets the Board approval.

“Once it gets approved (by the Board), GMR Infrastructure will demerge its holding into a company consisting of SEZ, mining, highways and power businesses to another GMR Infrastructure to be called GMR Infrastructure Ltd 2 (GIL 2),” said Sushil Kumar Modi, group chief financial officer (strategic finance), GMR Group.

Going forward, the company has plans to list GMR Infrastructure Limited on the exchanges after receiving the Board clearance and other regulatory approvals.

As per the plan, its airports business will be housed under GMR Infrastructure, while the proposed GMR Infrastructure 2 will have a mix of other business segments operating under it. Eventually, the SEZ, roads and mining businesses would be divested to pare debts, with GIL 2 left to focus on power business.

“We know for the company this is very critical. So much so that our investors who are coming in are of the opinion that the journey for the group from here onwards is to demerge. Finally, it is up to the Board of GMR Infrastructure to decide and approve,” added Modi.

Explaining the holding structure of the business during and post demerger exercise, Saurabh Chawla, executive director, finance & strategy, GMR Infrastructure, said, “We do not need any valuation exercise for this. We call it a financial parallel or vertical demerger or mirror view demerger wherein both GIL 1 and GIL 2 will be owned by the same set of shareholders.”

Currently, promoters own 63% in GMR Infrastructure and the balance 37% is held by the public. The same set of shareholding will get mirrored for the proposed demerger exercise.

“We are evaluating (the options), there’s no deadline or timeline but we are seriously evaluating,” said Modi when asked about the timeline on the demerger. Nonetheless, the process is likely to commence after a quarter or post the latest transaction with Tata Group-GIC-SSG gets consummated for GMR’s airport vertical. Therefore, the entire process may take a year to complete.

Post the deleveraging exercise, the management is hopeful that in the next financial year (2019-20) the company will report a profit after tax.

The company has identified its non-core businesses and would look to monetise its road assets, coal mine (Indonesia) and SEZ businesses.

The GMR Group has six road assets (four annuity and two BOT road assets) and holds 28.5% stake in a coal mine in Indonesia and a multi-product Special Investment Region at Krishnagiri, Tamilnadu along with a port-based multi-product Special Investment Region at Kakinada, Andhra Pradesh.