Last year, GVK had announced the consolidation of its infrastructure assets under GVKPIL, making it an integrated infrastructure player. As part of the consolidation, all the infrastructure assets came under one umbrella -- that of GVKPIL. However, subsequently, it has set up a sub-holding company, which will hold energy assets so as to create source for fund raising.
GVKPIL Chief Financial Officer A Isaac George says that the company has targeted to increasing its power generation capacity to 10,000 Mw in five years. It also has big hopes in oil and gas exploration and in nuclear power generation, he told Ch Prashanth Reddy. Excerpts:
Are you planning to sell your stake in the electricity business to fund expansion plans?
Today, the entire infrastructure assets are held by GVK Power & Infrastructure. So somebody who wants to invest in sector-specific assets doesn't have the leeway to invest in our company because the listed entity has diverse portfolio comprising energy, mines, roads, airports and special economic zones.
Many investors whom we have met were interested only in sector-specific investments. That prompted us to set up a sub-holding company under the listed entity called GVK Energy Limited, which will hold the energy assets.
Now, we are going to bring in investors. This will become another source of fund raising for us. So we are in the process discussing with private equity investors for giving them a stake in the holding company. Some of them have already started due diligence process of the assets.
How much money you are expecting to raise from this exercise?
The intention is to raise $200-250 million. How much stake will be sold finally depends on the valuation.
What are your expansion plans?
We certainly would like to do more in the energy vertical. We have a target of increasing our power generation capacity to 10,000 Mw over a period of next five years. It is a very aggressive target but we are trying to work it out.
What is your existing power generation capacity?
At present, we have about 2,641 Mw energy assets. Of this, 900 Mw has been completed, 330 Mw is under construction and 540 Mw is ready for financial closure.
Besides, detailed project reports are under preparation for 370 Mw hydro power projects. We also have two captive coal mines for the 540 mw power project. We already have another 1,500 Mw which we can set up in Andhra Pradesh.
How much investment is needed to achieve your target in the power sector?
It all depends on the type of fuel you are going to use. The thumb rule is that if it is a gas-based project, it will about Rs 4.5 crore (Rs 45 million) per Mw; if it is coal-based, it will be Rs 5.5 crore (Rs 55 million) and if it's hydro power, it will be about Rs 6.5 crore (Rs 65 million). On the whole, it will certainly involve a capital outlay of about Rs 40,000 crore (Rs 400 billion).
How do you propose to raise such an amount?
That should not be a problem.
No problem, even in today's market?
In this market, yes. It is certainly going to be a little stretched out. But this expansion will not happen instantaneously, it will happen over a period of time.
The construction period itself will be 4-5 years. I am sure markets are not going to remain like this forever. Though it is being considered that it is a long drawn financial mess that we have got into, I am confident that things will improve over a period of time.
So the current financial situation has no impact on your expansion plans?
Not really. We are going ahead in anticipation of better times. As of today, raising money for GVK has not been a problem. Its credibility is of very high order. We have not defaulted anywhere, at any point. I believe there is great deal of financial discipline within the organisation.
You once stated that loan limits are hurting power projects funding?
See, there is something called a sectoral cap for each bank. The banks can't lend more than 5 per cent of the total networth of all the power projects put together. Most of the banks have already reached that limit.
As a result, the banks today, which have reached the limit, will not be in a position to fund power projects. This is going to create a problem. For this sector to grow, these kinds of problems have to be relooked at.
What are your plans on the nuclear power front?
We want to get in but it is a bit premature today to make a statement on that. First of all, we have to figure out whether private participants will be allowed to set up a nuclear project in this country. The government will have to take a call on that.
Nevertheless, in anticipation that the private sector will be allowed to participate, we have decided to start a dialogue with equipment manufacturers and technology providers.
So, we have lined up some meetings with Alstom SA, Siemens AG, General Electric Company and Westinghouse Electric Company. These are the people who can supply the required equipment. This is what has been proposed as a first stage.
What happened to your plans for building airports overseas?
We are certainly interested but we are in no hurry. We are looking at opportunities. In fact, today my colleague who is looking after the international business initiatives is abroad. But I am not crazy about going international. It is not that I just want to become a global MNC, though I would like to become one at the appropriate time.
What are your future plans on the infrastructure front?
Water is an area that we certainly would like to focus on. We believe that there is immense potential in the entire value chain of water (industrial, potable, affluent treatment plants, etc). So we are holding discussions with possible partners, which are in an advanced stage. I can't reveal further details in this regard as I am under confidentiality. This is going to be the next big thing for GVK.
The other thing we are focusing on is roads. We are bidding for the Delhi railway station, shortlisted for Mumbai metro and also looking at the possibility of the Bangalore metro. We are also exploring the possibility of entering the logistics business and are already in discussions with possible partners in this regard.
The next five years will be interesting for the group. We have set some ambitious targets and I feel we will achieve them. The next couple of years we are going to focus on new business initiatives. We have already put a new business team in place, which is looking at opportunities.
What is the amount you have earmarked for oil and gas exploration?
The biggest thing which is going to make a world of difference for us is NELP VII, in which we have bagged seven out of the 12 blocks. We have tied up with BHP Billiton, which is one of the very big deep water explorers. We offered them 26 per cent stake, which they can increase up to 50 per cent.
When we had bid for the project, the minimum work programme we have committed was $35 million. This amount will be basically spent on seismic studies. When we start exploration, the cost would be $200-500 million per block. This will only come after we are satisfied that there is something underground.