GMR in talks to sell 30% in airports arm
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Mumbai: GMR Airports Ltd, the firm that runs India’s busiest airport, is in discussions with private equity investors to raise funds to pay back debt.
Canada’s Fairfax Financial Holdings Ltd and global private equity firm KKR & Co. LP are in talks with the GMR Group to buy about 30% stake in the airport business, according to two people close to the development.
The talks are at a preliminary stage and the deal is expected to be closed before March, said the first person, requesting anonymity. This person added that the firm plans to raise funds in the range of $500-700 million.
The company may be willing to sell more than 30% stake in the airport venture to raise the required funds.
GMR Airports Ltd aims to sell the stake at an enterprise value of $1.5 billion (Rs.10,000 crore), said the second person, declining to be named.
Credit Suisse Group AG is advising GMR Group in its fundraising process. The investment bank didn’t respond to an emailed query seeking comment.
GMR Airports, the holding company for the airports business of Bengaluru-based GMR Infrastructure Ltd, accounts for nearly half of the parent’s revenue and is the group’s best-performing business—making it easier for the debt-laden parent to raise funds. GMR Infrastructure also operates power plants and builds roads.
An email sent to a spokesperson for Fairfax remained unanswered, while a KKR spokesperson declined to comment.
The Prem Watsa-owned Fairfax has been an active investor in the Indian market. Fairfax India Holdings Corp. holds about 30% in IIFL Holdings Ltd.
Fairfax Financial Holdings Ltd also owns a 9% stake in ICICI Bank Ltd’s general insurance subsidiary ICICI Lombard General Insurance Co. Ltd.
Incidentally, PE investor KKR has already deployed money in GMR Group through structured long-term financing.
In September last year, KKR invested Rs.1,000 crore (about $164.2 million) with co-investors in GMR Holdings Ltd. According to that agreement, funds from KKR are to be infused in GMR Infrastructure in the form of equity capital.
On Friday, Madhu Terdal, the group chief finance officer of the GMR Group, said the group is exploring several options for GMR Airports, including mobilization of funds from a large investor, selling equity to clutch of private equity firms, an initial public offer (IPO), and private placement of equity ahead of an IPO for raising Rs.3,000 crore to Rs.4,000 crore.
“We have not dropped the idea of an IPO for airport holding company. Also, there is no urgency for our airport business to raise funds. We have no plans to raise funds for next three to four months,” Terdal said.
In the airports sector, GMR Airports operates India’s busiest airport, Indira Gandhi International Airport in Delhi, and Rajiv Gandhi International Airport in Hyderabad. The group has taken over the Mactan-Cebu International Airport project in the Philippines for renovation, operation and maintenance with a concession period of 25 years.
GMR holds a 64% stake in the Delhi International Airport Ltd (DIAL), 63% in the GMR Hyderabad International Airport Ltd (GHIAL). It also owns 40% in Mactan-Cebu International Airport project.
GMR Airports has already raised about $330 million from various PE investors, including Macquarie SBI Infrastructure Investments 1 Ltd, Standard Chartered Private Equity (Mauritius) III Ltd, JM Financial-Old Lane India Corporate Opportunities Fund I Ltd, JM Financial Trustee Company Pvt. Ltd, JM Financial Products Ltd and Build India Capital Advisors LLP.
Macquarie SBI Infrastructure invested $200 million while the rest put together about $130 million.
Terdal said the company has reached a settlement with private equity firms invested in the airport business in such a way that there is no immediate need for funding for the airport business.
According to the first unidentified person cited in the story, the proposed fund will be used to pay back the company’s existing investors as well as to clear its debt.
GMR Infrastructure’s consolidated debt was at Rs.43,439.60 crore as on 30 September.
According to a company presentation, GMR Infrastructure’s revenue from the airport sector for 2014-15 stood at Rs.5,468 crore (49% of total revenue), out of a total revenue of Rs.11,088 crore.
In the year ended 31 March, the airports business of GMR reported decent growth. DIAL surpassed the 40 million passenger mark at the end of March, witnessing a growth of 11% in traffic over the previous year. In the domestic cargo segment, DIAL surpassed Mumbai Airport in cargo traffic with a 15% overall growth in 2014-15 fiscal over the previous year, the company said in its annual report.
GHIAL surpassed 10 million passengers during 2014-15 and passenger traffic grew by 20% to 10.5 million.
Narayan K. Seshadri, chairman of business advisory firm Tranzmute Capital and Management Pvt. Ltd, said the steps the GMR Group is taking are in the right direction.
“They would have to look at their overall position, cash generation and not just rely on any value creation in the future while delivering. They will have to take some risks as they don’t have too many options,” Seshadri said.
On Friday, debt-laden GMR Infrastructure raised $300 million by selling foreign-currency convertible bonds (FCCBs) to Kuwait Investment Authority (KIA), one of the largest global sovereign wealth funds.
GMR Group has managed to convince KIA to invest in the Group, reflecting positive sentiments of the company, said a partner at a consulting firm, requesting anonymity.
Terdal of GMR said this investment marks the turnaround of the group as the 60-year-long FCCB due 2075 issued by GMR Infrastructure is a win-win situation for the company—equity dilution is likely only after an 18-month period.
“In the last two years, GMR Group has raised Rs.10,700 crore by selling equity. Who has raised this much amount in the past?” said Terdal, referring to a potential turnaround of the company.
He said the target of the GMR Group was to reduce debt by 30% to 40% through a series of measures.
Post the KIA deal, GMR Group would be reducing consolidated debt by 21% and standalone debt by 40%, Terdal said.
Singapore’s sovereign fund Temasek Holdings Pte Ltd also holds 8.5% in GMR Infrastructure through Dunearn Investments (Mauritius) Pte Ltd, a wholly owned subsidiary.