Temasek to buy preference shares worth Rs 930 cr in GMR Energy

MUMBAI: Temasek Holdings, the investment arm of the Singapore government, said, on Friday, that it would spend $200 million or Rs 930 crore to buy preference shares in the GMR Group’s energy unit, known as GMR Energy. These shares will be converted into equity once power projects of GMR Energy reach pre-agreed milestones.

GMR Energy is a privately-held company and Temasek’s exact holding will depend on the valuation at the time of conversion. The preference shares have a so-called lock-in period of one year which means Temasek cannot sell these shares for that period.

GMR Energy has been looking to raise $300 million to build new power plants with a capacity of over 5,500 mw. Other PE funds are also said to be in the fray to stump up the remaining $100 million, according to company officials.

Industry experts, who declined to be named, said that Temasek has invested in the form of preference shares convertible into ordinary equity because it could not reach an agreement with the promoters of the GMR Group, GM Rao and his family, on valuation.
After protracted talks, the promoter and the investor agreed that conversion would take place as different projects fructified, though ET was not able to obtain details of these milestones.

Manish Kejriwal, the head of Temasek Holdings India, admitted that the negotiations had been tough going. “There was a large difference between expectations of valuation which needed to be bridged,” said Mr Kejriwal.

GMR Energy has ambitious plans for the energy sector. Power plants owned by it currently generate 808 mw and it wants to increase this to 6,500 mw over the next four years. It has three running power plants and 10 other projects in various stages. It recently arranged funding for a 1,050 mw power plant which it is building in Orissa.

GMR has been scouting for private equity partners to fund the capital requirement for its power business, but infrastructure experts said valuations have been hampering deals.

“With this deal happening, we are comfortable in terms of capital requirement for our power projects for at least a year and a half,” GMR company sources said.

Apart from private equity, GMR is also close to achieving financial closure for a 600 mw expansion of an existing unit at Vemagiri. It is in talks with several public sector banks for the funding. “We will close the funding for Vemagiri by May,” said a GMR official.