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GVK’s two-year wait on Mumbai airport land may end soon

Airport operator to lease parcels of land via auction, earn rent from properties once they are built
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First Published: Tue, Dec 18 2012. 11 18 PM IST
The Mumbai airport operator can utilize the funds thus raised to repay the airport’s debt and fund its capital expenditure programme. Photo: Hemant Mishra/Mint
The Mumbai airport operator can utilize the funds thus raised to repay the airport’s debt and fund its capital expenditure programme. Photo: Hemant Mishra/Mint
Updated: Wed, Dec 19 2012. 12 34 AM IST
Bangalore/Mumbai: GVK Power and Infrastructure Ltd’s two-year wait for permission to offer for development about 200 acres of land around Mumbai airport, which it runs, may soon come to an end with the Maharashtra urban development department giving its final approval, said three people familiar with the development.
Once it gets the approval, GVK will launch road shows to showcase the project. The company will then auction the land parcels to be leased to the winners. GVK will also earn rent from the properties once they are built.
GVK raised its stake to 50.5% in Mumbai International Airport Pvt. Ltd (MIAL) in 2011 by buying a 13.5% equity stake from Bid Services Division (Mauritius) Ltd for $231 million (Rs.1,267 crore) today. Bid Services continues to own a 13.5% stake in the airport operator, ACSA Global of South Africa 10%, and state-run Airports Authority of India the remaining 26%.
“As per process, the public notice is expected to be put up to intimate the general public, the date for which ends this month. Once the notice is put out, the chief minister is expected to sign any time after that,” said one of the persons mentioned earlier, none of whom wanted to be named.
“The master plan has been done by HOK (a design and engineering company) and the plan is to bid out the land in a phased manner,” this person added.
MIAL can utilize funds thus raised to repay Mumbai airport’s debt and fund its capital expenditure programme. MIAL is modernizing the terminals, air-side facilities and air traffic control tower.
GVK will start monetizing the real estate after the development plan is finalized by the state government, said a senior company executive on condition of anonymity.
Vice-chairman and managing director G.V. Sanjay Reddy declined comment for this story.
The move is expected to lead to the development of around 20 million sq. ft over seven-eight years. The land use is largely restricted to hospitality-related activities such as hotels and serviced apartments, apart from office space and associated retail development. The land is in the suburbs of Santacruz, Kalina and Sahar.
“The monetization of the airport land is going to be hugely beneficial for GVK. MIAL is expecting to get over Rs.1,000 crore as non-aeronautical revenue,” said an airport consultant who spoke on condition of anonymity. “As Mumbai airport follows a hybrid model, 30% of the money will go to offset the hike in aeronautical charges, the remaining 70% will go to the airport.”
Aeronautical charges include fees for landing, navigation and parking for airlines. Airport charges are calculated under three models—single, double and hybrid till. Under single till, all principal airport activities including aeronautical and retail are taken into account to determine airport charges. In contrast, only aeronautical- or flying-related activities are considered under the double till principle, while the hybrid model is a combination of these two, proving cheaper for airlines than the dual till model but slightly more expensive than the single till one.
Property advisory Jones Lang LaSalle (JLL) has been given the marketing mandate for the project, for now named GVK Sky City.
The company also worked with GMR Infrastructure Ltd, which runs Delhi airport, when it conducted a similar exercise in 2009-10.
“Just like JLL helped GMR monetize real estate assets in Delhi, we will help bring in hospitality operators and equity partners here too,” said Anuj Puri, chairman, JLL India .
Puri sees high demand for the land as the parcels are in the city centre.
GVK reported a consolidated net loss of Rs.43.66 crore for the September quarter. Income from operations stood at Rs.640.35 crore for the quarter, up 34.14% from Rs.477.38 crore in the year-ago period.
“The loss during the quarter was attributable mainly to the interest paid on debt raised for acquisition of equity stake in Mumbai and Bangalore airport projects,” Mint reported 10 November citing a GVK statement.
Property consultants said pricing could be a challenge.
“GVK’s price expectation would be high from this project, and in the current scenario, while there would be many interested parties, there could be a price mismatch,” said a property consultant who didn’t want to be named.
Approval for the monetization of Mumbai airport’s real estate assets are a positive risk for the airport, said an 11 December report by JP Morgan India Pvt. Ltd authored by senior analysts Sumit Kishore and Deepika Mundra. They maintained the valuation of the Mumbai airport land at Rs.1,250 crore.
“We assume that 2.5 million sq. ft of the total 15 will be used to fund airport capex (capital expenditure). The physical master plan has been prepared and GVK is estimated to unlock two million sq. ft of commercial space initially,” the analysts wrote.
Shares of GVK Power ended at Rs.13.53 apiece on the BSE on Tuesday, up 1.81%, while the benchmark Sensex rose 0.63% to close at 19,364.75 points.
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First Published: Tue, Dec 18 2012. 11 18 PM IST