Madhucon to raise Rs1,300 crore from stake sale in power, road projects

Hyderabad-based Madhucon Projects hopes to mop up about Rs1,300 crore by selling stakes in its highway and power projects in five to six months, said director, finance, S Vaikunthanathan.

The company plans to dilute 26% and 20% in its road holding company and its 1,920 mw thermal power project at Nellore in Andhra Pradesh, respectively, he said.

Madhucon has seven road projects, of which three are operational and one is close to commissioning.

“We are planning to form a holding company for roads now that we have seven roads and it could be valued at Rs2,000-2,200 crore. We are looking at raising funds for our roads through private equity,” Vaikunthanathan said.

He said that Simhapuri Energy Pvt Ltd, which is the special purpose vehicle for the power project, could be valued at Rs3,800-4,000 crore.

Given the valuations of the two entities, the stake sale could fetch Madhucon Rs1,280-1,372 crore.

“We’ll go for a strategic investment in the power project. It could be a co-developer or a fund,” Vaikunthanathan said.

Madhucon is the sole developer of the project, which is being developed in three phases. The first phase of 300 mw is expected to be brought on-stream this month and the second of the same capacity by August-September 2012. The company is currently tying up funds for the final phase of 1,320 mw.

The money raised through the stake sale will be used to fund the equity component of Rs850-900 crore in roads and Rs1,500 crore for Phase II and III of the power plant. Some of Madhucon’s peers, including Sadbhav Engineering and GVK Power & Infrastructure, raised money from private equity investors last year.

Sadbhav sold a 22.22% stake in its development arm for Rs400 crore to Norwest Venture Partners and Xander Group. GVK offloaded 21% in GVK Energy to a 3i India Infrastructure Fund-led consortium for Rs1,200 crore.

A May 2 report by Angel Broking said raising capital is crucial for Madhucon.

“We believe the key triggers to watch out for Madhucon should be the pick-up in execution in the development business and building of an attractive asset portfolio to raise money,” Shailesh Kanani and Nitin Arora wrote in the report.

Madhucon will also by October-November file the draft red herring prospectus for the initial public offering of its subsidiary, Madhucon Infra, which is the holding company for all of the company’s development projects, including two coal mines in Indonesia.

Madhucon Infra was to be listed last year to raise ¤500-600 crore but the IPO was postponed due to Sebi rules on re-pledging of shares. Madhucon Projects had to transfer the shares of the special purpose vehicles to Madhucon Infra and then re-pledge them with banks.

According to Sebi rules, a company has to wait a year after such an exercise before going public.

For the fiscal ended March 31, Madhucon’s topline rose 29% to Rs1,705 crore while net profit showed an increase of 11.4% to Rs51 crore. The company’s order backlog stood at Rs6,200 crore.