http://www.livemint.com/Money/sYrld5Ns9t5B59uX3nGv0J/GMR-Infra-overhang-of-equity-dilution-stays.html
Meanwhile, there have been mixed responses to Friday’s announcement that the Kuwait Investment Authority has agreed to invest $300 million (Rs.2,000 crore) into GMR by way of a 60-year foreign currency convertible bond (FCCB).
The move is beneficial as it will help retire costly debt. Even with the currency risk, the interest rate at 7.5% on the FCCB is favourable. Interest is also payable annually, unlike rupee loans which build in quarterly interest payments. All this should improve cash flows.
But the main fear for investors is a steep equity dilution. Even in the September quarter, preference shares were converted into equity. Now, concerns are that there would be another dilution following the FCCB conversion at Rs.18 per share, 18 months from the date of investment.
Not only will the equity swell, but a large number of investors may be waiting to exit, which could cap gains. Certainly, GMR has its share of woes such as paucity of fuel to fire its gas-based power plants. In the last few quarters, such concerns have been addressed partially. Power plant load factors have improved. Airports too have fared better, with rising traffic in its assets.
According to a report by Elara Capital Ltd, the company has, after a long break of over five years, invited global firms to participate in monetization of 23 acres at Delhi airport.
Such developments should improve investor sentiment at GMR. The difficult part is to figure out when rising cash flows will be enough to beat the effects of equity dilution, thereby contributing to better shareholder returns.
Comments