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.

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    What should a consumer pay—VAT or service tax on buying property?

    The Centre is proposing to levy service tax, while the State government is planning to charge consumers value-added tax on real estate

    The fight between the Central and State governments may lead to consumers being double-taxed for buying a piece of real estate. The Central government is trying to impose service tax—while the State government is trying to impose value-added tax (VAT).
    The software industry which is facing the same problem has been protesting against this issue (of double taxation) for over a year, but has failed to receive any clarification from the government on the same. Now the realty industry is the victim of the same lacuna in the law, and the confusion in the industry is leading the consumers to pay double tax. Earlier, Moneylife has already reported on how developers are charging consumers both service tax and VAT. (see here).

    “You cannot charge both service tax and VAT together. The government has to clearly define what is a real estate property (and whether it comes under the ambit of either VAT or service tax),” said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd.

    “Sale of immovable property is governed by the Indian Stamp Act which falls under State jurisdiction. The Central government can’t encroach into State territory, and vice-versa, when all powers are exclusively provided for each government,” said Prem Chhatpar, a charted accountant.

    “The government needs to define a real-estate property properly—whether it is a product or a service. Instead, it wants to impose VAT and service tax. At the end of the day, a common man has to pay this amount. He should be aware that he is being double-taxed,” said Pankaj Kapoor, founder, Liases Foras.

    However, Mr Chhatpar said that real-estate consumers are neither supposed to pay service tax nor VAT. According to him, VAT is charged only on sale of goods. When a customer books a property, it is considered as buying of ‘immovable’ property and the buyer is not signing a construction contract with the builder. He is only contracting to buy a completed property. The developer is not rendering any service to the consumers, but only carrying out his duty.

    “Unless the consumer is providing the construction material and asks the developer to construct a property, only then it can be regarded as a ‘service’. In such a case, the consumer can be charged service tax, not otherwise,” said Mr Chhatpar.

    Some industry experts also questioned why both the Central and State governments are proposing to levy VAT or service tax for one year. “Why are we talking of VAT and service tax for one year, when by the next Union Budget, goods and services tax (GST) is likely to be levied,” said Mr Vakil.  

    However, an industry expert is against the proposed GST regime. “If GST is levied, it will boost the realty market—but it will be actually a big boost for the government at the cost of the common man,” said Mr Chhatpar.

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    9 years ago

    Dear All,

    Here government is not worried about the end customer who's purchaing the properties. Here, what builders are doing, they are collecting the Service Tax as well as VAT from the end customers so as to avoid any delay on payment of Service Tax or VAT, which is quiet agreeable. But the government is not understanding and also is not bothered about checking who is collecting the service tax and VAT from the property purchaser and thus whether this money is really going to the government.
    Secondly, why should customer pay twice towards 2 different taxes for a single thing. By doing this, the flat cost is rising and thus resulting in the flat not getting sold.
    Nowadays, already property prices are again hyped. Government has no control on it. Rather it is only thinking from their end how money will be pocketted in their safe. Government should also think on controlling the reality estate prices rather than introducing various tax policies. The rates should be constant at for an year or two. So that, the buyers can plan their purchases and also there will be less troubles for builders / purchasers to sell / purchase the under construction / ready properties.
    I hope many people including the builders/developers will agree on this.

    Exit Strategy

    NDTV’s loss-making, ego-driven, public-funded businesses are unravelling

    Quarter after quarter, we have marvelled at the ability of TV channels to survive the deluge of red ink that would have drowned companies in any other sector. Obscene salaries, lavish overheads and large dollops of equity options made these companies among the most expensive operations in India—especially relative to...

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