GMR Infrastructure said a consortium comprising the Tata Group, an affiliate of Singapore sovereign wealth fund GIC and Hong Kong-based SSG Capital Management would invest Rs 8,000 crore ($1.16 billion) in its airports unit.
GMR will use the entire fund to bring down its debt to Rs 12,000 crore from Rs 20,000 crore and move ahead to demerge the division into an “airport pure play”, or a standalone airport business, the company’s management told reporters on Wednesday.
The selloff will give Tatas a stake of about 20% in the airport holding company, while GIC and SSG will hold about 15% and 10%, respectively. GMR Infra’s stake will come down to about 54% while an employee welfare trust will hold about 2%.
The consortium has valued GMR Airports at Rs 18,000 crore. This, added to ‘earn-outs’ of up to Rs 4,475 crore over the next five years, will take the total value to Rs 22,475 crore after the stake sale is consummated.
Achieving of the earn-outs will increase GMR’s stake from 54% to about 62%, after the current PE investors SBI Macquarie, Standard Chartered Private Equity and JM Financial Old Lane exit, releasing their current stake of 5.8% in the group. It is also likely to alter the consortium’s stake by a minor margin.
Earn-outs are in the nature of estimated earnings based on certain performance milestones agreed upon between the management and investors. These milestones include performance of its duty free business, commercial real estate, etc., that the company can achieve over the next 5 years.
The fund infusion will include Rs 1,000 crore in fresh equity in GMR Airports. The rest will be towards the purchase of stake from GMR Infra and its subsidiaries.
The new investors led by Tatas will find representation on the board, but the management will continue to be run by GMR. Tata Sons is yet to decide the company where it will park its airport stake. “The (airport) company will be controlled, managed and operated by GMR,” said Saurabh Chawla, executive director, finance & strategy at GMR Infra, responding to queries whether the control and operation would be shared with the new investors.
The demerger proposal is yet to receive the GMR board’s approval.
While for GMR, which also has businesses in energy, roads and highways, the deal would help the parent repay a significant amount of debt, the Tata Group has identified GMR as “the vehicle” to realise its ambition of participating in the airport development sector.
Tatas had in the past tied up with Spanish airport operator Ferrovial to bid for projects such as the Navi Mumbai airport.
The Tata Group has 44% in the consortium. The GMR deal will mark a second corporate behemoth’s entry into the country’s airport sector this year after the Adani Group won bids to operate five airports owned by the state-run Airports Authority of India.
Sushil Kumar Modi, group CFOstrategic finance at GMR Group, told reporters that the group had identified airports and energy as its two main businesses. It will gradually exit from other non-core businesses like roads and highways and coal mines in Indonesia to eventually create two listed entities, housing its airports and energy businesses.
Private airports in India have largely been a duopoly between GMR and rival GVK Power & Infrastructure that operates the Mumbai airport and has the mandate for the second airport in the city, which would be India’s costliest airport project. Fairfax Holdings of Canada-born billionaire Prem Watsa runs the airport in Bengaluru, having bought it from GVK. GMR currently operates the airports in Delhi, India’s busiest, and the fourth-busiest in Hyderabad. It is expanding capacity at both airports.
Source: Economic Times