In January this year,AERA approved a 154% hike in the development fee for Mumbai International Airport (MIAL),a move that would help the operator recover its investments in a project that has seen significant cost and time overruns.From an initial estimate of.9,000 crore,the total capex now stands at.12,300 crore.
As of September 2012,MIALs debt stood at.5,416 crore.The AERA tariff order has come in last month.This will boost the profitability of the projects, favourably impacting the valuations. Changi is studying the implications,though they are yet to give their feedback, one of the officials cited above said.The equity valuation that GVK is expecting for its airport business,being pegged at.12,000-13,000 crore,is more than the current market capitalisation of GVK Power and Infrastructure (GVKPIL),the listed parent company that on Monday stood at.2,043 crore.This is higher than the previous valuation of.8,000 crore that was being reported.
GVK Airport Developers owns a majority 50.5% stake in MIAL and 43% in Bangalore International Airport (BIAL). It also has the right of first refusal for a second airport that is being planned for Mumbai. Additionally,the company has won development rights for modernising two Indonesian airports.In late 2011,officials from Changi Airports were engaged in exclusive dialogue with the GVK Reddy-promoted eponymous infrastructure conglomerate to pick up a 26% stake in GVK Airports Developers Ltd the holding company of GVKs airport business for.2,000-2,200 crore.But the proposed partnership did not fructify eventually.A clutch of PE investors such as Blackstone,Morgan Stanley Infrastructure Partners, JPMorgan Asian Infrastructure Fund and SBI Macquarie had also evinced interest.
REPAYING DEBT
The urgency to reach a deal,said analysts,is more from GVKs side.Other than the attraction of having an experienced airport developer on board as a joint venture partner,the key trigger for reviving the talks is its effort to bring down high leverage levels. GVK is looking to repay.2,500-2,900 crore of short term debt from the airport vertical alone,and to that extent is seeking equity infusion from potential partners.It is still not clear how much they will dilute,but at least 26% will be on offer to get a strategic partner on board.
Those details are still work in progress, said one of the sources mentioned above.Over the last two years,GVK has increased its equity holding in MIAL from 37% to 50.50%,making it a subsidiary of the company.Similarly,it has hiked its holding in BIAL to 43% from 29%.These acquisitions from earlier partners like L&T,Siemens etc were done by raising close to.2,500-crore debt.So,as a priority,they need to deleverage and infuse cash, said Deepak Purswani,research analyst with ICICI Securities.There is significant stress in GVKs consolidated balance sheet.The power business another cash guzzler has also become a huge drag with low plant load factors,limited domestic coal linkages and unavailability of natural gas feedstock from Reliances KG basin. So they are just not being able to generate much cash flows from other non-airport verticals when the equity requirement is huge.
If they cannot address this urgently,GVK may be forced to go to CDR, warned an analyst from a leading Mumbai-based foreign brokerage on condition of anonymity.As of September 2012,the total consolidated debt of GVKPIL was.15,527 crore.According to analysts,the conglomerates interest payouts are set to balloon to.1,000 crore by FY14,more than double the FY12 figure of.462 crore.They also have foreign currency convertible bonds (FCCB) of.417 crore.For Changi,a deal with GVK will be a gateway to airports in two of India's biggest cities,Mumbai and Bangalore.It has been eyeing the Indian market for a while,having previously tied up with Sunil Mittals Bharti to bid for the Delhi airport privatisation in 2006.It had subsequently tied up with Tata Realty Infrastructure to bid for airport projects in India,especially in non-metros.It also made a bid to acquire Siemens 14% stake in the Bangalore airport,but lost out to GVK.Changi already has a 10% stake in Bengal Aerotropolis a greenfield airport project.
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