GE T&D Unit Valuation Jumps Before Second Sale Attempt
A tiny business unit of GE T&D India Ltd. has prompted an uncomfortable question for the company's management. That it so far hasn't answered.
On Jan. 4, GE T&D, the listed entity of General Electric's grids business in India informed shareholders that it's once again contemplating the transfer of its Global Engineering Operations Division, or GEOD, to a private GE group firm.
This is the second time in 12 months the company has sought to sell the business, except this time the fair value is up over 60%. This despite the unit receiving no new orders in the past year and with all its contracts set to lapse or be terminated by March 2022.
The GEOD unit provides engineering services to other GE Grid entities outside India through an engineering services team. It's a captive unit—all customers of GEOD are only internal GE entities and contracts and purchase orders from group companies are issued for short term requirements of up to one year. There are no long-term contracts for GEOD.
It's also an insignificant contributor to GE T&D revenue—just 3% at Rs 85.9 crore in FY20. The net book value of the assets was also judged to be Rs 13 crore, less than 2% of the net worth of the company.
And yet, shareholders didn't approve its sale the first time.
The Sale: First Try
In February 2021, the company asked shareholders to vote on the slump sale of the GEOD business to GE India Industrial Pvt. (GEIIPL)
The company's rationale for the sale was:
Global parent GE is creating a Global Engineering Operating Centre under GEIIPL.
This offers a good opportunity to transfer GEOD to the global center and realise value.
The sale of a non-core business will help GE T&D reduce debt and focus on core activities
Based on an independent valuation done by Ernst & Young Merchant Banking Services the transfer was proposed to be done at Rs 87.3 crore, close to one time sales of the unit.
But shareholders didn't approve, led mostly by public institutional shareholders. 52% of the total votes cast on the proposal were against it. Being a related party transaction, promoter and promoter groups were not allowed to vote.
GE T&D Shareholding
Interestingly, in April, soon after the deal fell through, GE T&D notified shareholders that the group would give no new business to the GEOD division and all existing contracts would either lapse or be terminated by notice.
"To mitigate restructuring cost of impacted employees and assets, the Company is exploring potential solutions to minimise impact on the Company," GE T&D said in its FY21 annual report.
The Sale: Second Try
On Jan. 4 this year, the company informed the exchanges that it had again commissioned an independent valuer, BDO Valuation Advisory, which valued the GEOD business at Rs 140.5 crore.
Versus the Rs 87.3 crore valuation a year ago. That's a 61% increase. And it comes after the division received no new business since June 2021 and the old contracts are set to lapse or be terminated.
So what explains the higher valuation? GE T&D has not yet responded to BloombergQuint's queries sent a week ago.
In its stock exchange filing, the company added that merchant banker, RBSA Advisors, has issued a fairness opinion on the valuation.
With the new valuation in hand, GE Grid Solutions and GEIIPL have expressed their "continued interest" at the revised valuation, GE T&D said.
That means another sale proposal may be coming. Will shareholders agree?