gift

http://www.livemint.com/Companies/Cn1HHekVPvt7cSM9Bcy0bJ/GMR-raises-300-mn-by-selling-FCCBs-to-Kuwait-Investment-Aut.html

60 year maturity. 7.5 % coupon. Convertible after 18 months at 18. 11-12% dilution for exisiting shareholders

Largest outbound for KIA

RBI permission announced Monday, deal signed Tuesday, announced Friday.

Macquarie, Stanchart, others exiting

Thinking: part of stancharts push to exit poste haste

Mumbai: Debt-laden GMR Infrastructure Ltd had raised $300 million by selling foreign currency convertible bonds (FCCBs) to Kuwait Investment Authority (KIA), a sovereign wealth fund.

“In what will be a significantly large bilateral investment between India and KIA, signed a definitive agreement to invest $300 million (Rs.2,000 crore) in GMR Infrastructure. KIA today agreed to subscribe to a 60-year-long foreign currency convertible bond (FCCB) due 2075 to be issued by GMR, the flagship company of the GMR Group,” GMR said in a statement.

The bonds will be convertible into equity shares of Rs.1 each. The initial conversion price is Rs.18 per share, but the investor can exercise the option to convert after 18 months.

The company’s shares fell sharply on Friday after the announcement on fears of equity dilution over the medium term and concerns over additional debt being taken on by the company.

Shares lost 14.64% to Rs.15.45 in Mumbai trading on Friday, while the benchmark Sensex lost 0.96% to 25,638.11 points.

The equity dilution will not happen for at least 18 months. On full conversion, an existing shareholder of GMR Infrastructure will see an equity dilution of 11-12%, said Madhu Terdal, group chief financial officer at GMR Group.

“This investment represents one more milestone in GMR’s turnaround journey and strengthens the balance sheet,” he said.

Deutsche Equities India Pvt. Ltd was financial adviser to GMR and Citigroup Global Markets India Pvt. Ltd advised KIA.

“FCCBs typically provide more flexibility of payment than conventional debt. Having said that, if a FCCB has an assured coupon payments, it is closer to debt than equity,” said Deep Narayan Mukherjee, a visiting faculty at Indian Institute of Management Calcutta and former senior director from India Ratings and Research Pvt. Ltd.

The conglomerate had taken approval from shareholders on 23 September for raising up to Rs.2,500 crore by way of equity shares in one or more tranches.

GMR Infrastructure’s debt was Rs.43,439.60 crore on 30 September. The proceeds from the issuance will be used to repay outstanding obligations.

This is the largest bilateral investment from KIA and shows the confidence of sovereign investors in the long-term policies being implemented by the Indian government, particularly in the infrastructure space, G.M. Rao, chairman of GMR Group, said in a statement.

Farouq Bastaki, executive director at KIA, said it is looking forward to participating in GMR’s growth as a long-term investor.

FCCBs have a chequered history in India. Over the years, a number of disputes have arisen between firms and investors over such bonds. Most recently, investors in FCCBs of Castex Technologies Ltd, an Amtek Group firm, alleged that the stock price of the company had been manipulated to ensure conversion of debt into equity.

Arup Ganguly, managing partner and head of the India team of KNG Securities, said he would be “very wary” of buying any FCCB issue in India with a mandatory conversion feature until there are significant improvement in the legal and regulatory mechanism that can allow investors to protect their rights. KNG Securities is a London-based brokerage active in issuance and trading of convertible bonds.