GVK seeks MoEF nod to use HSD for gas-based power project…

 

With gas supplies from KG-Basin coming to a standstill, Gautami Power Ltd, a GVK group company has sought permit from the Ministry of Environment and Forests (MoEF) to use High Speed Diesel (HSD) instead of natural gas at its plant in East Godavari district of Andhra Pradesh.

This comes after a committee under the MoEF opined that usage of HSD for power generation will not be as eco-friendly as natural gas and directed the company to obtain views of Ministries of Power, Petroleum and Natural Gas on the issue.

"The Committee deliberated on the proposal and noted that the quantity of HSD to be utilised for power generation is quite substantial. The usage of HSD in such quantities will not be as eco-friendly as natural gas.

The Committee therefore desired that the PP shall obtain the views/comments of Ministry of Power and Ministry of Petroleum & Natural Gas on the use of HSD for the project before taking a decision," the Expert Appraisal Committee (EAC) under the MoEf said in its meeting last month.

It was also noted that Government is subsidising HSD for certain specific-end users only such as for transportation, the EAC further said. The gas-based power project has natural gas allocation of 1.96 MMSCMD by MoPNG from KG Basin for operating the plant on full capacity.

As the gas supplies for the project have come down due to reduction in gas production in the KG D6 fields, it is requested to amend the environment clearance for using HSD (green diesel) with sulphur content not exceeding 0.05 percent as an alternate fuel instead of emergency fuel. The plant operated on full generation for the years 2009, 2010 and 2011 using gas supplied from KG D6 gas fields. However, since October 2011, the total gas supply from KG D6 has been reducing from the original level of 60 MMSCMD to less than 15 MMSCMD and supply to power sector was stopped since March 2013.

As per the existing policy of the Government, power generation using indigenously sourced HSD is allowed.

The Ministry of Power and MoPNG has already accorded NOC for HSD as fuel for GVK's Jegurupadu Phase II Power Project (220 MW) in East Godavari district last year. Many gas-based power plants including that of GVK's are sitting idle due to non-availability of gas.

GVK Power stock price

On January 15, 2014, GVK Power & Infrastructure closed at Rs 10.20, down Rs 0.23, or 2.21 percent. The 52-week high of the share was Rs 15.36 and the 52-week low was Rs 5.52. The latest book value of the company is Rs 15.84 per share. At current value, the price-to-book value of the company was 0.64.

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GVK Power: Hopes of debt reduction priced in…

 

GVK Power & Infrastructure has gained investors’ interest recently following news of the company’s plans to monetise assets in the coal and airport verticals.

The recent completion of the new terminal at the Mumbai airport has further fuelled hopes that the company’s debt burden will ease. Though a lot of this is driven by hopes, analysts are cautious because at present there are many issues and its resolution may not happen soon, which could have a bearing on GVK’s share price.

"Notwithstanding improvements in operating performance of airport and road assets, GVK’s cash flow concerns are expected to exacerbate due to incremental funding needs for financing cost overruns. High debt burden and the need to retire acquisition debt are other issues which GVK has to face," said Shankar K, who tracks the company at Edelweiss Securities in a research note.

In fact, analysts are not falling for the stock’s cheap valuations at this point in time as they believe some of the issues are far more risky from the investors’ perspective. "We highlight that higher leverage, Hancock (coal business based in Australia) and overhang in power vertical would continue to weigh on the stock despite attractive valuations," said Deepak Purswani, who is tracking the company at ICICI Securities.

After the completion of terminal 2 at the Mumbai Airport, the market has started to look for the monetisation of the adjourning land bank. Monetisation of the land bank would be crucial for retiring some of GVK’s debt, which has been the biggest concern for the investors for quite some time now. Earlier, the company received interest from about 23 parties for the monetisation of the 1.8 million square feet of land of Mumbai International Airport (MIAL). The analysts are expecting this monetisation to fetch around Rs 1,200-1,500 crore, which may not be sufficient given the huge debt of over Rs 18,500 crore in the company’s books. However, it could kick-start the monetisation programme and would provide the much required liquidity in the interim.

The company had earlier said that it plans to monetise assets in the coal, power and airport businesses. However, looking at the issues in the power and coal businesses, the Street is banking on the monetisation of airport-related assets, which now should be easier given that the asset has become operational. Also, this vertical is currently making profits and that will enable the company to get good valuations. The book value of GVK's stake in the airport business alone is estimated to be worth over Rs 3,000 crore, including Rs 2,200 crore for the Mumbai Airport. How much the company is able to command from investors for these assets will determine the quantum of debt reduction. Analysts though are still cautious.

"Even in airport business, considering the current valuations, it would not fetch much money and if the company sells a large stake, it will have nothing in its portfolio to talk about," said an analyst with the leading broking house.

The issue of debt reduction is crucial, especially in the light of tight liquidity and weak cash flows from the operations. In the September quarter, the company incurred interest cost of Rs 213 crore on an operating profit of Rs 299 crore indicating very less leeway in terms of disposable profits for repaying debt. Even then, the Street was worried about how the company was going to repay its debt and service interest cost in the light of losses in the power business and constraint cash flows.

The power segment employs Rs 10,755 crore of capital and generates quarterly sale of Rs 96.06 crore. It’s over 900 mw of gas-based power generation capacity is currently operating at about 20-30%, and is not even able to recover the costs and service the debt. The market has written off the equity invested in these projects, which are suffering due to the lack of gas availability and because of the losses. In fact, analysts worry if the problem of the gas availability is not resolved, the debt taken for the power projects could have their bearing on the overall business of the company. However, with news about a possible increase in India’s gas availability doing the rounds, there is a ray of hope. If things improve for GVK, these assets should see better output and consequently also see an improvement in financial performance and valuations.

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GVK in dialogue with banks to fund $10-billion Hancock project...

 

Infrastructure developer GVK Power & Infrastructure (GVKPIL) is keeping all options open to fund its $10-billion Hancock project and is in discussions with bankers.

“We have made significant progress towards realising this project. This milestone symbolises our common vision,’’ GV Krishna Reddy, chairman, GVK, said. “We are in discussion with many banks and are hopeful of achieving the financial closure for this project in a year’s time. The coal production is likely to start in another 1-2 years,’’ he said.

The company is currently doing the legal documentation and it is believed that the valuations have also gone up.

The company is also exploring equity participation and fund infusion through banks and export credit agencies to realise this mega project. In September 2011, GVK had bought a 79% stake in the Alpha and Alpha West thermal coal projects in Queensland’s Galilee Basin and 100% of the Kevin’s Corner coal project next to Alpha.

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CARE downgrades GVK Power to 'BBB+'...

 

Credit Analysis & Research (CARE) has downgraded the long-term bank facilities rating of GVK Power & Infrastructure from 'A-' to 'BBB+' aggregating to Rs 4.25 billion.

CARE has also downgraded the long/ short-term bank facilities rating from 'A-/ A2' to 'BBB+/ A3+' aggregating to Rs 1.20 billion (reduced from Rs 2 billion) of the company.

The revision in the ratings of GVK Power and Infrastructure (GVKPIL) takes into consideration deterioration in financial performance of the company during FY13 (FY refers to the period April 1 to March 31) and H1FY14, decline in operating performance of gas based power plants of the group, deterioration in capital structure of the company and delay in execution of projects under implementation in the hydro and thermal energy segments.

The ratings continue to derive strength from the experience of the promoters and management team, track record of successful execution of projects, well-diversified portfolio of assets under operation and development and long term growth prospects for the infrastructure sector.

The ratings, however, continue to be constrained by high investment commitments of subsidiaries and step down subsidiaries, inherent risk associated with development of greenfield infrastructure projects and exposure to the subsidiaries and other group companies in the form of corporate guarantees.

The ability of the company to raise funds in a timely manner, improve capital structure and meet equity commitments of group companies, as per the schedule without any further deterioration in the financial risk profile are the key rating sensitivities.

Shares of the company declined Rs 0.03, or 0.36%, to settle at Rs 8.25. The total volume of shares traded was 1,096,235 at the BSE (Friday).

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GVK gets Australian Govt nod to develop Abbot Point Port for sea transportation of coal...

 

GVK Power and Infrastructure, on Tuesday, announced that it had received the Australian federal government’s approval for the GVK Hancock project’s Abbot Point Port Capital Dredging programme.

The move, according to GVK, finalises the Ministerial environmental approvals for its Galilee Basin coal assets and associated infrastructure. Achieving the final environmental approval from the federal government was a significant milestone towards development of the GVK Hancock Terminal 3 port facilities and coal assets including the Alpha, Alpha west and Kevin’s Corner coal projects, along with the construction of a rail network to Abbot Point.

Together with the previously received clearances for the Alpha mine, the rail to Abbot Point and the EPBC Act approval for the port, the company acquired coal mines in Queensland for $1.26 billion, and had plans to invest close to $10 billion in the infrastructure.

GVK Power chairman G.V.K. Reddy welcomed the approval, claiming that it would help protect environment besides creating jobs and economic investment in the region.

“This approval takes our projects into the final stage of development, and we look forward to successfully developing and consolidating our position as the leading Indian infrastructure development company,” company Vice-Chairman G.V. Sanjay Reddy said.

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GVK and Aurizlon reached a significant milestone for the development of Australia coal resources...

 

GVK Power & Infrastructure Ltd has informed BSE that Aurizon and GVK Coal Infrastructure (Singapore) Pte Ltd (GVK Hancock) have reached a significant milestone towards their proposed transaction for the joint development of a rail line and a new coal terminal at the existing Abbot Point Port to unlock the Galilee Basin’s coal resources, including GVK Hancock’s Alpha, Alpha West and Kevin’s Corner coal projects.

In this regard, the Company has issued a Press Release titled "Aurizon and GVK Hancock reach a major milestone towards signing the proposed Galilee Basin Rail and Port Transaction".

 

Download the Press Release from here.

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GVK Power gets approval for Kevin's Corner mine in Australia...

 

Australian Federal Government has granted environmental approval for GVK's Kevin's Corner Project in Queensland, the city-based infrastructure major said today.

In late 2011, GVK had acquired a 100 per cent stake in the Kevin's Corner project and a 79 per cent stake in the Alpha Coal and Alpha West Coal projects from Hancock Prospecting Pty. Ltd.

GVK Reddy, Founder Chairman and Managing Director, GVK Power and Infrastructure Limited, said the company commends the Federal Government on its thorough environmental assessment process and its decision to approve this significant project that will create immense employment opportunities.

"This approval comes as a major milestone towards our goal of becoming the premier and most reliable coal supplier to the world thus enabling better lives. It further strengthens our commitment to deliver world-class infrastructure projects in a timely and responsible manner," Reddy said.

Following a rigorous and thorough assessment process by two levels of government spanning five years, Federal Environment Minister Greg Hunt gave an approval decision to construct and operate Kevin's Corner Coal Mine, 50 kms north of the town of Alpha in Queensland, GVK said in the release.

In a timely and considered decision, the Minister finely balanced the protection of environment with the need for economic investment and job creation, it said.

The Kevin's Corner Project is an advanced coal project and has a mine life in excess of 30 years with a capacity to produce up to 30 million tonne per annum of export quality thermal coal.

 

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Award of two Uttarakhand Hydro projects to GVK-L&T Consortium cancelled; out of that one awarded to Reliance Infrastructure…

Power India found that around 370 MW of Hydro Projects (200 MW Mapang Bogudiyar & 170 MW Bogudiyar Sirkari Bhyol) which have been awarded to the GVK-L&T consortium have been cancelled and Mapang Bogudiyar has been awarded to Reliance Infrastructure Limited by Uttarakhand High Court.

 

200 MW Mapang Bogudiyar hydroelectric project

• The Uttarakhand High Court has ordered cancellation of the award to a GVK-L&T consortium by the state government earlier, after it was found that the entity did not meet key eligibility conditions to bid for the project.
• The court has ordered the state government to award the project to Reliance Infrastructure, which emerged as the second highest bidder for the project.

 

170 mw Bogudiyar Sirkari Bhyol

• In case of another project, the 170 mw Bogudiyar Sirkari Bhyol, awarded to the GVK-L&T and where the state government’s decision has been legally challenged, the court has left the final decision to the state.

 

Uttaranchal Jal Vidyut Nigam Limited (UJVNL) has issued In February 2004, international notice inviting proposals for implementation of five hydropower projects, including the Mapang Bogudiyar and Bogudiyar Sirkar Bhyol on behalf of the state government.

 

Power companies such as GMR, Reliance Infra and GVK-L&T have participated in bidding for these projects.

The bid clearly stipulated that in case of a bid by a consortium, the net worth and net cash accrual of the Lead Partner should not have been less than 26% of the net worth/net cash accrual of the consortium. This was an important and essential condition of the bid.

However, the net worth and net cash accrual of GVK(Lead member) was only 11% and 14% respectively of the consortium.

The state government, however, relaxed this mandatory bid condition and pre-qualified GVK-L&T consortium for submission of price bids.

Based on offers submitted by bidders, the state government allotted the Mapang Bogudiyar and the Bogudiyar Sirkari Bhyol projects to the GVK-L&T consortium.

 

 

 

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GVK Power & Infrastructure: Investors advised to exit stock…

Capex commitments in the current high interest rate environment are likely to increase the interest burden of GVK Power &Infrastructure(GVK). Availability of gas for its power plants would be an added concern in the near term.

BUSINESS
GVK Power and Infrastructure (GVK) is a holding company that has assets across various sectors such as power, airports, roads and natural resources through various special purpose vehicles (SPV). GVK operates the Mumbai and Bangalore airports.
In the power division, GVK has three operational gas-fired power plants with a combined operational capacity of 901 MW and has additonal 870 MW capacity under construction.

INVESTMENT RATIONALE
Gas availability for three of GVK's gas-fired power plants is a concern due to the reduction of gas supply from ONGC and Reliance. Lack of clarity on gas availability has forced it to defer expansion of its gas-fired power plants.
GVK's consolidated debt has increased as a result of aggressive expansion. It has expanded its stake in the Mumbai and Bangalore airports, which has consequently increased its debt by approximately Rs 1,800 crore last year. In addition, Mumbai airport has planned capex of Rs 9,800 crore of which Rs 4,200 crore is to be funded by debt. It is perceived that there has been a cost escalation of nearly Rs 3,000 crore from the original estimation.
The company has a 50.5% stake in Mumbai airport. Any unfavourable change in tariff rates by the Airports Economic Regulatory Authority of India, which is currently reviewing the tariff rates at Mumbai airport, would impact earnings from the airport.
GVK recently acquired a 10% stake in Australia's Hancock Prospecting for $1.26 billion. The deal includes acquiring a majority stake in coal resources, railway line and the port infrastructure projects of Hancock Coal. For this, the company would have to incur additional capex.

FINANCIALS & VALUATIONS
GVK's consolidated debt increased by 24% to Rs 6,901 crore in September 2011. This figure is likely to go up as the company has increased its stake in the Bangalore airport to 43% for $231 million in October 2011.
In a high interest rate situation, existing debt as well as additional capital expenditure would substantially increase the company's interest burden in future. This was 46% of its EBIDTA in six months ending September 2011.
A fall in interest rates may provide respite for the company's stock. However, availability of raw materials and capex commitments are likely to curtail its profits in the near term. Investors are advised to exit this stock.

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Power Stocks update for the week closing on Friday…

Shares of power utility players rallied on Friday after government data showed electricity generation went up by 14.6% in November 2011 from the same period the previous year.

This is against the 5.6% growth in October 2011. Jaiprakash Power spurted 11%. Reliance Power gained 7.7% while GVK Power rose 5%. Stateowned NHPC ended up 4% and NTPC jumped 3.11%.

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GVK Power & Infrastructure – Stock Update…

According to Mr. Manoj Murlidharan Vayalar, Associate VP Derivatives, IIFL PReMIA,stock prices of  GVK Power & Infrastructure can test the level of Rs 17.20.

 

According to Mr. Murlidharan,

"In GVK Power & Infrastructure in last seven days there is good accumulation happening. But the thing is you know it's beaten down very badly. The thing is there is some investment or possibly some traders were taking at least long positions in that. So I would still bet on GVK Power. Around Rs 17.20 odd is what we can expect in that at least in the short term."

The company's trailing 12-month (TTM) EPS was at Rs 0.43 per share. (Sep, 2011). The stock's price-to-earnings (P/E) ratio was 31.58. The latest book value of the company is Rs 16.05 per share. At current value, the price-to-book value of the company was 0.85.

Stock Chart (Courtsey:Moneycontrol)

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GVK Power & Infra may raise debt to fund Australia’s Hancock buy…

As flagged by Spark earlier, GVK Power and Infrastructure, which will acquire two coal mines from Australia's Hancock Prospecting for about $2.2 billion, could likely fund the acquisition by raising debt without much strain on key financial parameters as the Hyderabad-based company's leverage is comfortably below industry peers.

The board of GVK is expected to meet soon to take a formal decision on the transaction that has also been approved by its lead banker,

ICICI Bank.

 
The board meet may focus on the route to be adopted to fund the acquisition. According to information available with the Economic Times Intelligence Group, GVK Power's debt:equity ratio - which typically denotes the ability of the company to raise loans - is favorably placed compared to its competitors such as GMR Infrastructure and Lanco Infratech, who have also acquired coal mines in the recent past to feed their power plants.

GVK Power and Infrastructure's current debt-equity ratio is 1.2 which is much lower than GMR's 2.6 and Lanco's 2.7. As on March 31, 2011, GVK's net debt was Rs 5,548 crore, while its equity stood at Rs 4,540 crore. Power companies typically have a large debt-equity ratio due to the high cost of setting up the projects where large loans are contracted.

 
In this industry, the ratio typically goes up to 2.5 to 3. The special purpose vehicle route, where a newly-formed company would take on the debt, is the most preferred option for power companies. Even if the company were to raise debt of about Rs 4,500 crore for the Hancock transaction, the debt equity of GVK Power will still be lower than its peers, at 2.2, according to an analysis by ETIG

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GVK Power to buy Australian Coal Mines for $2.2 billion…

GVK Power & Infrastructure has reached a deal to buy two coal mines in Australia, taking a heavy bet which has the potential to put an enormous strain on its finances.

Spark heard on the street that the GVK Power & Infrastructure,  Hyderabad based company is planning to buy coal mines of Australia based firm Hancock Prospecting. The deal will cost around $2.2 billion (about Rs 9,900 crore) and will include mines and the transport infrastructure which will be needed to move the coal at least 500 km to a port.

This move of GVK will assist the company for steady and secure access to the fuel for all its future planes in power sector and will be beneficial for the company as in India the fuel supply gets crimped by environmental holdups and troubles in the Maoist dominated coal producing states.

The deal will give GVK steady and secure access to the fuel for its plans in the power sector as supply in India gets crimped by environmental holdups and troubles in the Maoist-dominated coal-producing areas.

The cost of Coal Mines Alpha coal and Kevins’s corner will be around $1.3 billion and the associated losgistics will be around $900 million.

 

GVK has tied up with ICICI Bank, Standard Chartered Bank and Axis Bank for funding the transaction with Ernst & Young as an advisory.

Hancock is run by Gina Rinehart, Australia's richest woman. The Hancock sale was initiated through an auction in which the bidders included GMR Infrastructure, JSW Energy and Essel Mining of the Aditya Birla Group.

GVK, which operates the Bangalore and Hyderabad airports, three gas-based power projects and the Jaipur-Kishangarh expressway, ended the 2010-11 financial year in March with sales of 1,900 crore and net profit of 155 crore. Its share price has fallen by more than two-thirds in the last 52 weeks, valuing the company at 2,600 crore. On Thursday, the GVK stock fell 4.6% to 16.60.

The company, which has debt of about 5,500 crore, is building a 540 MW coal-fired power station in Punjab.

The two coal mines that GVK will buy have combined reserves of 7.6 billion tonnes and are located in the Galilee Basin in Queensland province. They can produce 30 million tonnes of coal annually over a life of 30 years.

The deal, when it is signed, will be the third major acquisition by an Indian company of Australian coal mines as local firms venture overseas to overcome supply problems at home.

Adani Enterprises paid about 12,000 crore to Linc Energy and Lanco Infratech agreed to buy the holdings of Griffin Coal earlier this year for nearly 3,500 crore. India is likely to import nearly 100 million tonnes of coal this year.

 
The power sector is one of the largest consumers of the fuel, accounting for 71% of demand, which is met through linkages with state-run Coal India and Singareni Collieries.

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MTSL 1980 MW Thermal Project at Raigarh - 8 companies in the race…

Spark Network found that around 8 power companies have bided for the 1980 MW Thermal Power Project of Maha Tamil Collieries. The project is proposed to be set up at Raigarh district of Chhattisgarh.

Eight power companies are known to have bid for the 1,980-Mw thermal power project of Maha Tamil Collieries, in Raigarh district of Chhattisgarh.

The list of the companies include Reliance Power, GVK, Lanco Infratech, GMR, L&T, Sterlite Energy, JSW Energy and Indiabulls Power. The cost of the project estimated at Rs. 15,000 Crore. The project being a pit-head will be located right at the attached coal mine. The mine, Gare Pelma – II produces 15 mt annual output and having reserves of around 768 million tonnes.

Maha Tamil Collieries is a joint venture company of the Tamil Nadu Electricity Board (TNEB) and the Mahrashtra State Mining Corporation, each an arm of their respective state governments. TNEB has 77 per cent of the equity and MSMC the rest. The JV will allow the successful bidder to use coal from the mine to put up the power capacity. The developer must, after satisfying obligations to the host state (Chhattisgarh), sell half the remaining power produced to the state electricity boards of Maharashtra and Tamil Nadu. The other half can be sold on a “merchant basis” though the two boards will have first right of refusal on these, too. And, any extra coal from the mine should be diverted back to the joint venture company.

The bid rules asked for companies with at least three years experience in mining 10 million tonnes in the past three years, either in India or abroad. Bidders who have been selected to develop a coal mine with geological reserves of 250 million tonnes are also qualified.

Spark Network believes that the bid qualifications are very strict and very few companies can qualify,  but the project has generated huge interest because it is one the biggest power projects seeking bids after the Tilaiya (in Jharkhand) ultra mega power project (UMPP) bids.

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