We are quite confident of the underlying value of our assets

We are just taking out money from where we think we have got the maximum and putting it into projects which we think has potential, says Parmit Chadha, CEO, Strategy and Corporate Development, GMR Infrastructure, in an interview with Sumantra Das.

Could you tell us about asset light asset right strategy?
This is a new business to modern end strategy that we developed last year. It is something new to India but is a tried and tested moderately internationally. The asset light strategy works once you start approaching your funding limits and other stages.

Which are the other projects of GMR that will come under the same format?
We will take the portfolio review before taking any decision on that strategy. At our first step, we had identified a road project. For others we have to wait and see as they develop. It is too early to give any definite needs, but yes, you will continue to see divestments and investments. It is not like they are selling everything. We are just taking out money from where we think we have got the maximum and putting it into projects which we think has potential.

But in that way, are you planning to exit from any of your ongoing projects?
No, many of them cannot really. Currently that is not permissible regulatory even. So, Singapore was one exception but for example, we retain 26 per cent and that will continue to be because now 74 per cent is with the state that we are affording 26 per cent is what we are retaining.

So, how did this Share Purchase Agreement (SPA) help the company?
There are two things that happen with this SPA. One is on the equity side and the other on the debt side, both of them are important. If look at energy, you see our balance sheet, there was net debt of around Rs 27,000 crore or above. Now if look at that Singapore project, out of the Rs 27,000 crore, almost Rs 2,300 crore was reduced because of Singapore SPA. So, our debt has come down. At the same time, we have sold it at a very healthy premium. In terms of what that does for our financial, the debt side and the equity side, we have got a very healthy premium of Rs 1,300 crore. Our network has gone up by that much. At the same time, our debt has come down. So this is very positive impact altogether.

But do you think with this strategy you will always be able to grab a good premium?
Obviously. Premium varies for various things, but if we look at the quality of our assets, obviously one cannot always save whether you will get 100 per cent to 200 per cent or whatever, but I think we have been getting healthy premium. Even in highways, and you know roads is a stressed sector right now. We got a premium of almost 50 per cent which is not bad at all. So, we are confident. One of the major things in the GMR portfolio is that a very good track record of delivering on time at least. So, the cash flows have started earlier. The quality of the project’s construction has been very good. So, we are quite confident that we will continue to get premium on whatever we divest. May be one or two, it may not happen but I think if I look at the portfolio as a whole it should be fine.

In present scenario, valuation of any project is a major concern. How do you find this particular model as a viable one?
If you see highway projects where one keeps hearing their projects are indebted and people are being offered at less than book value, but we got a 50 per cent premium. So, we are confident of the underlying value of our assets as well as viability of our model. If you take the Singapore project, three years back it was just a licence that we got from intelligence. In three years, we have taken the steps to build it to this value. So, spotting the right project is also important.

Do you think that Indian infrastructure developers will also follow the same?
They could. May be over a period of time Indian infrastructure players opt for this model. Look at the current model which is dependent on a lot of bank funding and equity injections in the market every two years. But, at a certain point, it reaches its limit from where you can not keep growing.

If you want to put $1 trillion into infrastructure into new projects, public or private, ultimately the country needs to find the $1 trillion which is a huge amount. So, where is that money going to come from? Thus, I think these kinds of approaches are going to become standard in the infrastructure industry over a period of time in India too.

Do you think there can be a recovery in road and power sector?
I would always say that especially on power sector at least causes are understood and personally there are a couple of things that need to be done. Some of the initiatives are in the right direction, basically how they move out, but yes if you are asking overall. Considering the current status, we have challenges in highways. I am talking about the sector as a whole and not necessarily GMR. But clearly there are some issues in terms of financing and clearances which are hopefully will get cleared up soon.

While your Asset Light-Asset Right approach is innovative, how much cash flow enhancement do you see in the next year? Do you believe it would enhance visibility of your cash flow? Which is at present low in your group?
Yes, specifically if you look at group. Last few years, we have been in project development mode. So, to that extent you have not seen the cash flows. There has been investment in the project. Now, let us go sector by sector. End of last year, we have achieved commercial operations date (COD) of two road projects, partial COD of one project and full COD of the other.

Then, if we look at airports, you know instances like Male happened. But most of the regulatory issues were sorted out. Then, if we look at energy, we are going well that is relatively small one but we have two major projects. We have had problems on that but then two major coal plants came into operation this year. So overall, we will be seeing a significantly distinct picture from this year.

GMR has taken some bold, unprecedented steps while bidding for infrastructure projects. How are your investors responding to the conflicts that some of your major projects have dragged in? Isn’t there a feeling that you may have downplayed the risks?
Yeah, in Male, I will just say that those were circumstances beyond our control. Anyway, the matter is now going into arbitration. So, I cannot say much, but I think, Male is a project we have always been saying that we would like to continue the airport. Now, let us see how that goes on. Now regarding Kishangarh-Ahmedabad project, we were quite confident about it.

We had looked at multiple scenarios, but I think what was not expected is there would be this delay in the clearances and then has lead to some questions about the basic assumption and the viability. So, we have taken that with energy sector. Now, we have to wait and watch how they respond. I think those issues that we have raised are quite genuine and they are industry-level issues which will have long term impact.