GMR’s fund gap could hit Delhi airport

GMR’s fund gap could hit Delhi airport
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First Published: Sun, Dec 21 2008. 11 53 PM IST

Cash crunch: GMR group chairman G. Mallikarjuna Rao. Harikrishna Katragadda / Mint
Cash crunch: GMR group chairman G. Mallikarjuna Rao. Harikrishna Katragadda / Mint
Updated: Sun, Dec 21 2008. 11 53 PM IST
New Delhi: Delhi International Airport Pvt. Ltd (DIAL), the operator of India’s flagship airport, New Delhi’s Indira Gandhi International Airport, has quietly warned the civil aviation ministry that work on the modernization of the country’s second-busiest airport may come to a halt in the next 45 days if the consortium is unable to raise funds, according to a senior ministry official.
Cash crunch: GMR group chairman G. Mallikarjuna Rao. Harikrishna Katragadda / Mint
This is the first time that DIAL, a GMR Infrastructure Ltd-led consortium managing the airport modernization since the summer of 2006, has warned of a financial crunch that could affect the Rs8,890 crore project.
GMR group chairman G. Mallikarjuna Rao told the ministry at a meeting last fortnight that DIAL has not been able to raise the required funds that it had expected to by leveraging real estate, and the problem has worsened with banks backing off from releasing agreed-to amounts as indicators such as passenger traffic, on which the loan was based, have changed drastically.
Amid a significant economic downturn, between July and November alone, the Delhi airport has seen a drop of 16% in domestic passenger traffic coupled with a 2% drop in international traffic.
Detailed questions sent on Friday to DIAL remained unanswered until late Sunday even though a spokesman had said Mint will get a reply on Saturday.
“It’s in a bad shape,” the same aviation ministry official said of the project, asking not to be named because he is not authorized to discuss internal matters with the media. This official added that GMR has told the ministry that the firm has some Rs200 crore for the project that “will last about 45 days”. The worst-case scenario GMR laid out, this official said, was that the project may come to a halt if government support doesn’t come through.
Kapil Kaul, India chief executive for aviation consultant, the Centre for Asia Pacific Aviation, now predicts DIAL’s financing troubles will see it miss a critical 31 March 2010 deadline for completion of the first phase of modernization and expansion of the New Delhi airport, ahead of the high-profile Commonwealth Games in the capital later that year.
A key part of the project’s first phase is completion of a new terminal building, work on which is under way even as a new runway, also part of the first phase, is already complete and operational.
“I am certain they are not going to meet the 2010 deadline and the phase II will get affected at all these airports,” predicts Kaul.
The apparent funding gaps at DIAL are the result of a series of proposals that have not taken off.
In May 2007, the airport operator had sought a land-lease proposal for a 45-acre land parcel, to raise at least Rs2,835 crore in refundable deposits that would fund modernization of the airport. That proposal ran into regulatory hurdles with the aviation ministry opposing the fund-raising plan as it was seen as a means to bypass some nearly 46% revenues that have to be shared with state-owned Airports Authority of India, or AAI, which holds 26% in the Delhi airport project.
GMR Infrastructure holds 50.1% of DIAL’s equity with Frankfurt airport operator Fraport AG and a unit of Malaysia Airports Holdings Bhd each owning 10%. Private equity firm, the India Development Fund, has a 3.9% stake.
Trouble in the air: Modernization work in progress at the Indira Gandhi International Airport. The worst-case scenario GMR has laid out is that the project may come to a halt if government support doesn’t come through. Madhu Kapparath / Mint
After several rounds of discussions, DIAL was allowed to partially raise deposits for the same land-lease and it was believed that DIAL would be able to raise Rs1,500 crore, some Rs1,300 crore less than the original estimate.
Soon after, GMR Infrastructure told its investors in August that it expected to have the “bidding process (for hotels) to be completed by end-September 2008 and bids to be awarded by October 2008”.
That plan, however, has not taken off with real estate in a major slump in India’s big cities, especially in and around Delhi.
“The response to real estate (plan) has been bleak,” said the same ministry official. “Real estate buyers are inquiring and seeking more clarifications resulting in dates being extended again and again.”
DIAL had then sought relaxations on taxes from the Union government and permission to levy a so-called airport development fee on passengers, which taken together, would have potentially raised around Rs2,000 crore.
With a Rs300 fee on each outbound domestic passenger from the Delhi airport, besides Rs1,000 each on those flying international routes from January 2009 to December 2011, that alone would have been able to raise Rs1,400 crore.
But last fortnight, as reported by Mint on 16 December, India’s law ministry rejected the suggestion of a passenger fee, citing conditions in the airport lease agreement signed in 2006. DIAL’s plans to increase airport charges, such as landing and parking fees by 10%, which it can do from year three under the same lease agreement, hasn’t happened yet either.
Another civil aviation ministry official, who too asked not to be named, said DIAL has been asked to come back with other suggestions to help with the funding gap.
A user-development fee, or UDF, such as the one charged at Hyderabad’s new airport, also run by a GMR-led consortium, could be one of the options, this official added. But, revenues from UDF will have to be shared with with the airports authority, unlike the previous fund suggestion that was billed as a way to raise money for capital expenditure.
Shares of GMR Infrastructure closed at Rs71.50 a share on the Bombay Stock Exchange on Friday.
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First Published: Sun, Dec 21 2008. 11 53 PM IST