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GMR Dilutes 12% Issuing Equity to Temasek and Manipal Pai Family



GMR Infrastructure has had to compensate private equity investors who bought into their energy subsidiary. After getting Rs. 1,375 cr. as convertible debt from private equity investors in its subsidiary, GMR Energy Limited, in 2010, the investors were promised exits through an IPO. Which isn’t exactly forthcoming. Therefore the parent company will be diluted and convertible debt alloted to those investors.

GMR will dilute equity 12% in exchange for compulsorily convertible preference shares of Rs. 1137 cr. from the original PE Investors. These will be converted around 17 to 18 months later (Sep and Oct 2015)

The prices they will pay are market prices, the higher of past six month and two week average weekly closing prices – at this time the price works out to around Rs. 21, but the price calculation will be done after 17/18 months.

GMR’s equity will increase from 389 cr. shares to 443 cr. shares. I could talk about their Earnings Per Share if they had any earnings; they just posted a Rs. 441 cr. loss.

Who are the private equity investors?

While the mainstream news networks talk about “Temasek and an IDFC consortium” this is slightly misleading.

Temasek is the biggest investor in the lot, getting to buy Rs. 788 cr. worth of GMR stock, and will hold about 8.5% of GMR Infra, if converted at today’s prices.

IDFC is a tiny piece, only Rs. 40 cr. , or 0.45% of GMR Infra.

The Tulsa Community Foundation gets 54 cr. (0.6%) and what seems like an Indian construction family company, Premier Edu-Infra, buys 42 cr. (0.45%)

The biggest non-Temasek investor will be the Manipal Pai family (Ranjan Pai and co) who have to put in Rs. 210 cr. (2.26%) Of course Ranjan Pai also has investments from IDFC in other group companies, so it’s a complicated loop.

There’s about Rs. 270 cr. of residual investment in GMR Energy that will continue.

The Company Won’t Benefit

The money invested is likely to flow back to these investors after flowing through to the subsidiary (because it’s just a rejig of the original investment).

It’s plain dilution, and GMR infra isn’t going to save much on interest costs or actual debt. The original investment in GMR Energy too was in convertible debt. Effectively its dilution for the company’s past borrowings through a subsidiary, a factor that needs to be considered when valuing shares of this company.

Lesson: So now, apart from knowing who owns shares your company has, you must know who owns preference shares in a subsidiary of the company, and whether that will eventually dilute your stake.

GMR Infra listed at Rs. 40 (post-split price). I didn’t like it. The price went to Rs. 1,000, and I was feeling stupid. Then it fell all the way to Rs. 62, and I still didn’t like it. And right now, for me, there’s no real reason to like it either.

Note: if the stock doubles from here, it will return you exactly what you invested in 2006 if you bought into the IPO.

Disclosure: No positions.


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