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GMR Group Didn’t Write Down Rs 2,250-Crore Investments Despite Auditor’s Red Flag

Why auditor says GMR Infrastructure’s power business loss would have been far bigger.



Guru Nanak Dev Thermal Plant, a thermal power station, dominates the skyline of Bhatinda, Punjab, India. (Photographer: Prashanth Vishwanathan/Bloomberg)
Guru Nanak Dev Thermal Plant, a thermal power station, dominates the skyline of Bhatinda, Punjab, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

The auditor to GMR Infrastructure Ltd. said that its power sector loss would have been Rs 2,250 crore higher in the nine months ended December had it accounted for the reduced value of its investments.

SRBC & Associates LLP, the audit arm of EY, based its qualified opinion on a valuation report submitted by external experts, according to the auditor’s statutory limited review of the third-quarter earnings. The company didn’t disclose who commissioned or prepared the valuation report.

The auditor had raised similar concern in the financial statement for the year ended March 2018 and the first and second quarter of the current financial year.

GMR Infrastructure’s plants were among the 32 stressed power assets with Rs 1.8 lakh crore worth of loans at risk. More so after the Reserve Bank of India’s circular of February last year tightened the debt restructuring timeline. So far, power companies haven't been taken to the insolvency court because of the status quo ordered by Supreme Court.

The auditor said the Rs 2,250-crore diminution in the group’s investments in GMR Chhattisgarh Energy Ltd. and GMR Energy Ltd. as of March 2018 has not been accounted for.

It's over and above the loss of Rs 545.56 crore in the power segment already reported by the company for the nine months ended December. That suggests the power business’ impact on the GMR Infrastructure’s balance sheet is much bigger.

The auditor said not accounting for diminution is not in accordance with relevant accounting standards.

On its part, the company said in the notes to account that the carrying value of the group's investments is appropriate and no further adjustment has been made in the consolidated financial results for the quarter and nine months ended December.

The Investments

According to disclosures by the company, two power companies along with their related entities suffered diminution in value. These are GMR Chhattisgarh Energy and GMR Energy Ltd along with its underlying entities one of which is GMR Rajahmundry Limited. Its Chhattisgarh and Rajahmundry, Andhra Pradesh projects have completed strategic debt restructuring and the lenders are now in control. They don’t have long-term power purchase agreements, and the combined debt stands at Rs 8,200 crore.

GMR Chhattisgarh

In GMR Chhattisgarh, the parent had invested Rs 1,149.96 crore. The valuation report relied by the auditor suggests that the entire value of the investment needs to be diminished.

The unit had accumulated losses of Rs 3,942.42 crore at the end December 2018. The lenders acquired majority stake 52.38 percent after converting debt of Rs 3,000 crore into equity. The total debt after strategic debt restructuring stood at Rs 5,800 crore as of December.

Lenders along with GMR management have initiated the process to find a buyer for 100 percent stake in the unit as per the RBI’s Feb. 12, 2018 circular for resolution of stressed assets, the company said. GMR Infrastructure, according to its financial statement, expects the stake sale to be completed in “due course” but hasn’t received information from the lenders regarding bidding or the approved bid, a reason why it found the carrying value of the asset appropriate.

In response to BloombergQuint’s emailed queries, the company said the lenders’ consortium had informed it on Nov. 28 that the process was in final stages with one bidder being identified as highest qualified interested bidder. The value of the bid, however, can’t be disclosed because of the “confidentiality involved in the matter”. The entire bid process is pending approval of all lenders as required by the RBI’s Feb. 12 circular on resolution of stressed assets, it said, and depends on the final verdict of the Supreme Court.

GMR Energy

The parent invested Rs 3,000.2 crore and the valuation report relied by auditor suggests diminution of Rs 1,100.04 crore. The management clarified that its gas-based entities will generate sufficient profits in future years and meet their financial obligations, a reason why it found the carrying value of the asset appropriate, according to its financial statement.

The parent, GMR Infrastructure, said it has taken initiatives like asset monetisation and debt refinancing to repay loans and create “sustainable” cash flows. The company had nearly 6,800 megawatts of power generation capacity as of December.

The auditor, in a separate note, also drew attention to management’s admission on losses in energy and highway sectors. The company said that on account of the losses, the group’s net worth eroded and some of its borrowings received lower credit rating.

(Updates an earlier version with emailed response from GMR Infrastructure)