Companies & Sectors
Trail goes cold on a $1-billion acquisition

GMR acquired power utility InterGen, based in the Netherlands, at a transaction worth $1.10 billion in 2008. Two years later, not much financial information is available about the acquired company in the public domain

GMR Infrastructure’s overseas acquisition of InterGen NV in 2008 was touted as one of the biggest Indian overseas acquisitions, specifically in the energy sector. Two years later, when InterGen’s assets form a significant part of GMR’s power assets, not much financial information about the Netherlands-based company is available in the public domain. 

GMR had acquired the 50% stake in InterGen from AIG Highstar Capital II LP, a fund owned by the American International Group. Back in 2008, according to a press release issued by GMR, the transaction was valued at $1.1 billion.

In October 2008, InterGen issued a press release on its website stating that GMR Infrastructure Limited had completed its previously-announced acquisition of a 50% interest in InterGen from AIG Highstar Capital and affiliates. The balance 50% in InterGen is held by Ontario Teachers’ Pension Plan. This Canadian pension plan has held this stake in InterGen since 2005.

According to a Karvy Research note, InterGen’s total present operational capacity is around 6,254MW, of a total equity value of Rs32,226 million, thus placing GMR’s 50% stake in the power utility at a value of Rs16,113 million.

This stake in InterGen is significant considering GMR’s total operational capacity (including all its subsidiaries)—and excluding InterGen—is only around 9,087MW. The total stake value of GMR in all the assets and projects owned by it is around Rs2,68,065.40 million, including InterGen.

InterGen has 12 power plants located across the UK, the Netherlands, Mexico, Australia and the Philippines. GMR’s presence in these countries is only due to the InterGen acquisition.

Despite InterGen forming a significant asset base for the group and GMR having acquired the stake at $1.1 billion, not much information is available about the company on GMR’s website or in its annual reports.

GMR’s annual report for 2008 -09 states that the financial results of InterGen have not been considered in the consolidated results of the company pending conversions of Compulsory Convertible Debentures (CCDs).

GMR’s results for the December 2009 quarter also state that the company has given a corporate guarantee of up to a maximum of $1.38 billion to the lenders on behalf of a fellow subsidiary to  enable it to raise debt for financing the InterGen acquisition.

InterGen, with its headquarters in the Netherlands, was delisted from the Singapore Stock Exchange in 2008. The ‘financial reports’ section on InterGen’s website is also locked from public view. Thus, accessing the company’s financial data is almost impossible.

According to one of the analysts tracking GMR, InterGen’s plants are operating satisfactorily, but not much data is available to state the exact operating profits of the company. An email sent to the GMR corporate communications department requesting more financial information on InterGen remained unanswered at the time of writing this article. Similarly, an email sent to InterGen was also not immediately answered.

Though InterGen’s financial information is not available in the public domain, facts and figures related to the company’s existing—and planned—capacity as well as debt can be accessed only through analyst reports.

As per the Karvy research note, InterGen has a total 8,086MW of net operational capacity (including 428MW under construction in the Netherlands). Of the 8,088MW, its net equity capacity is 6,254MW. About 70% of InterGen's capacities are sold on a long-term basis and the remaining on merchant basis.

The note further states that InterGen’s market value is around Rs1,43,546 million. The company holds debt of around Rs1,86,550 million. Given GMR’s 50% stake in Intergen, GMR’s InterGen stake is valued at Rs 71,773 million.


SEBI asks mutual funds not to pay upfront commission from load accounts

The SEBI directive means that AMCs will have to pay upfront commissions out of their recurring expenses accounts or from their own pockets

In a move to bring protect investors’ interests, market watchdog Securities and Exchange Board of India (SEBI) has mandated all asset management companies (AMCs) not to pay upfront commission to distributors from the load account. They can now pay upfront commission only from the recurring expenses account or from their own pockets. AMCs will have to comply with this new rule from 1 April 2010.

It may be recalled that Moneylife had earlier reported on how fund houses were paying upfront commissions for ELSS and other schemes to garner assets. (Read here).

After the ban on entry load by SEBI, fund houses were paying upfront commission from the load account. If an investor exits from the fund before the lock-in period, the exit load was transferred to this account. The commissions were as high as 2.5%-3%. Money held in a load account is supposed to be invested for the schemes and investors but AMCs were using this fund to pay upfront commission and for marketing purposes.

The new rule spells good news for investors but Independent Financial Advisors (IFAs) are up in arms. They feel cornered and discriminated against especially since insurance companies are able to offer lavish incentives to their agents.
According to sources, AMCs may now increase the trail commission or decrease the exit load in order to stop churning. AMCs were paying upfront commission which included trail of either one to three years or after negotiating the terms with the distributor. Distributors will now have to depend on the trail commission which is around 0.25% to 0.50%. If an investor holds Rs1 lakh investment in a mutual fund for six months, then the distributor gets Rs125 (0.25%) as trail commission.
“People expect to get money from the advisor rather than giving money to the advisor. The IFA does not get any money for selling Rs10,000 in a mutual fund. He may get it only if the investor holds on to it for six months or one year. The day-to-day survival of small IFAs will become difficult after the new SEBI rule, “said Ramesh Bhatt, CEO, Aniram, a Chennai-based IFA.

“Most of our customers give cheques of Rs10,000-Rs15,000. IFAs have to do 10 times more business now. Most of them will move out from the fund industry,” added Mr Bhatt. According to sources, AMCs will now only be able to pay 25 to 30 basis points of upfront commission. “It will mainly affect the smaller IFAs. The market will not expand,” said an IFA. “Sundaram Entertainment Fund had paid 1.50% upfront commission for one week. They had announced a dividend and wanted to capture maximum money by paying an upfront commission. Earlier when 2.25% commission was paid, we paid 25 paise as service tax and were left with 2% out of which we paid cash back of 1.75% to the investor,” said a distributor.

SEBI had earlier mandated AMCs not to pay dividend out of the unit premium reserve. The hefty dividend payout was merely a marketing tool by fund houses to attract more investors. The AMCs contacted by us did not wish to react to the new SEBI directive.




7 years ago

is sebi chairman is a full nonsense ?
what he think, mf business are increase in north east ? we are going to protest against mutual fund industry . they have not selling/mobilize mutual fund in north east.


7 years ago

Rakesh Kumar

7 years ago

this way only unemployement is increasing, as there are lacs of IFA have only source of income from MF industry, so what we think this way at the end you are also increasing unemployement, Mr bhave says "IFA should ask profesional fees from investor, what does he think, for investing in sip of rs 500 who will give extra to IFA, i am not an IFA but i am investor, but still i know my IFA has stopped coming to me and for all work related to mf i need to go to AMC office or its registrar. if he think this way he gonna make the people of india like foreign country, so stop dreaming without making our fundamental economy strong and sound and investor more knowledgble.


7 years ago

it is a part of financial politics....sebi is under the effect of trial and error mathods of investments policies....

arjun rajput

7 years ago

For ur knowledge shri suresh subramanian in ur first investment u must had taken the help of mf distributor, & in case of LIC POLICY there is no harm to any policyholder because LIC gives fixed bonus from the first year onwards on the sum-assured which is even 50% plus than the premium of first year so donot amuse urself on ur smartness.


7 years ago

I am invest so many funds. Suggest the newfunds


7 years ago

I wants to say something to Mr. Suresh Ramasubramanian, that in India all the investor don,t know how to do the trading online for MF. For you its fine, but what about other investors.


7 years ago

Ask Mr Bhave leave the job, to sell mutual fund & survive on mutual fund commission. Commission is very high other than any industry.

Benzi Thomas

7 years ago

Dear Bhave,
Have you ever seen the people in rural India? MF Industry is becoming rich man's apple. What are the measures you have taken to educate the poor citizens of India? Is it enough to convey the message of MF industry? Participation in the development of India is isolating the common man, thereby boosting the FIIs and causing greater volatility. If any problem occurs, they will take their flight again. All these rules have to be implemented periodically as the Invesors in india are capable to stand their own unless it will be a great failure. Don't kill this fraternity

Suresh Ramasubramanian

7 years ago

It is amusing to see the various IFAs / agents come up with one excuse or the other.

Only slightly valid point I saw was from Manoj who asked whether paying out of their own corpus rather than premium means the bonus declared wont be decreased.

In my perspective .. the bonus is quite variable anyway according to the market situation, fund performance etc. And I tend to invest in growth plans that dont have anything to do with dividend at all so that is not much of my concern.

Right now I can, and do, make all my investments directly using online trading sites provided by the various mutual funds that I invest in *** ( for hdfc, for example).

I dont need to pay a single paisa in commission to any agent. So that's good. Only problem is LIC insurance policies where there is no way to buy the policy except through an agent as far as I can see. And if you use an agent there, his commissions + the management fees etc charged are far fatter than those for mutual funds so that about 40..50% of your first 2..3 years premium just gets gobbled up..

I only invest in 3 funds by the way .. buy in dips and stay invested during peaks .. All growth plan growth option. Reliance Regular Savings Fund Equity, HDFC Equity Fund and SBI Magnum Sector Funds Umbrella Contra Growth. And I track those funds very closely indeed.


7 years ago

bhave should be bitten by all distributors,as he is changing the rules day by day


7 years ago

Goverment of india wants from public of india that invest much to grow the economy of india but how it can possible without the working hands life mutual fund advisior without commission how a mutual fund advisior can work in market.

P. Ravi Krishnan

7 years ago

Only way for AMCs is to reduce their administrative expenses for the sake of IFAs from whom former is getting business. It is observed that AMCs are spending heavily on Agents/Investors conferences with lunch/dinner. Moreover, they are enoying luxurious life by staying in five star hotels, enjoying holidays in various resorts & tourist places, travelling in air conditioned taxis, trains, & flights. While IFAs are doing business with their sweat & blood.


7 years ago


Ram Krishna Chauhan

7 years ago

If really SEBI wants to benefit the investors than its officers must study the ULIP Plans of private insurance companies & see the heavy charges deducted whichare 7% to 50% in first year & 3% to 9% from second year onwards in all ulip plans. These plans are made to give benefit firstly to insurance companies ,secondly to agents & lastly policyholders are merely fetching any returns because most of the investors get loss in regular premium plans even after the period of 3 years+. One more important fact is that these insurance companies gives policy to 60 years plus persons also without any risk coverage on their life but charging same heavy charges from these innocent citizens. Sebi must perform its duty by stopping insurance co's to sell such products & ban all charges, which SEBI has done against the mutual fund entry load case. Jai hind.

Exports surge by 34.8% in February

Due to the slowdown last year, cumulative shipments during the April-February period declined by 11% to $153 billion

Expanding for the fourth straight month, exports surged by 34.8% in February to $16.09 billion against $11.94 billion in the year-ago period on the back of revival in Western economies.

Due to dismal performance up to November 2009, the cumulative shipments during the April-February period, however, declined by 11% to $153 billion from $172 billion in the same period last fiscal, said RS Gujral, Director General of Foreign Trade.

Indicative of a revival in the economy, imports rose 66.1% to $25.06 billion in February against $15.08 billion in the corresponding month last fiscal. “It shows that the economy is picking up,” said commerce and industry minister Anand Sharma.

As in the case of exports, for the cumulative April- February period, imports showed a decline of 13.5% to $248 billion compared to $287 billion in the first 11 months of the last fiscal.

Sectors like engineering goods, textiles, jute, carpets, handicrafts and leather continued to display poor performance.

After falling for 13 months in a row since October 2008, exports re-entered the positive zone in November 2009.



Shadi Katyal

7 years ago

Why mislead the readers .One month rise doenot become a story. Look at the total figures and shows decline so why such misleading head lines.

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