India’s GMR to buy half of InterGen for $1.1bn

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Indian infrastructure group GMR on Wednesday agreed to buy half of US power producer InterGen for about $1.1bn from an investment firm backed by American International Group and Highstar Capital.

The move extends GMR’s reach outside of India and gives it technical expertise to boost its fledgling domestic power business and take on big Indian companies such as Tata Power.

GMR would gain “exposure to super critical technology,” said Madhu Terdal, chief financial officer of GMR. Mr Terdal added that InterGen’s management team would remain intact and that GMR’s supervision would be “minimal”.

InterGen’s portfolio includes power plants in the UK, the Netherlands, Mexico, Australia and the Philippines. It has twelve existing and planned power plants with an output of 5,280 megawatts.

GMR is a relatively small producer in India with plans to run 10 plants in the country. It was barred from bidding for the “ultra-megawatt” power plants planned across India a few years ago because it was generating less than 1,000 MW of energy. Teaming up with InterGen would allow GMR to vie for contracts to build large plants capable of generating 4,000 MW each, said Mr Terdal.

India is scrambling to build more power plants as energy demand swells. The International Energy Agency projected that India’s energy consumption would double between 2005 and 2030 if its economic growth continues at current levels.

The deal comes almost three years after AIG, Highstar Capital and the Ontario Teachers’ Pension Plan jointly acquired InterGen for $1.75bn from Royal Dutch Shell, the Anglo-Dutch oil company, and Bechtel of the US.

OTPP will retain control of the remaining stake in InterGen.

GMR has holdings in energy, roads and airports and is overseeing construction of Delhi’s new airport. It led a group that built Hyderabad’s gleaming new airport, which opened this March.

Acquisition of InterGen marks GMR’s second foray outside India. As part of a consortium that includes Limak Holdings of Turkey and Malaysia Airport, GMR won a bid for construction and management of a new terminal at Istanbul’s international airport. The €250m project will be completed in 2010.

Lehman Brothers acted as financial advisor to Highstar. Rothschild advised GMR. The deal is the largest-ever acquisition of an energy utility company by an Indian company.

Financing for purchase of InterGen was arranged through overseas branches of Indian banks including Axis, Canara, Bank of India and Bank of Baroda.

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