Mumbai/Bangalore: GVK Power and Infrastructure Ltd (GVKPIL) has become the second largest shareholder in Bangalore International Airport Ltd (Bial) after acquiring the 17% stake of India’s largest engineering firm Larsen and Toubro Ltd (L&T) for Rs686 crore in the operator of the third busiest airport in the country.
With this, GVKPIL, which also runs the Mumbai airport, has increased its stake to 29% in Bial. The Bangalore airport, opened in May 2008, handled 8.7 million passengers in the first year and has been valued at around $1 billion (Rs4,630 crore).
Siemens Project Ventures GmBH continues to be the largest shareholder with a 40% stake. L&T, which exited the airport project, got Rs105 per share, a return of at least 10 times in five years. The stake acquisition, announced on Sunday, comes on the heels of GVK buying a 12% stake from another shareholder last month.
“We will be having a board representation,” Sanjay Reddy, vice-chairman of GVKPIL, said over the phone. “I want to make Bangalore airport as one of the biggest airports in the country. But it’s too early to comment as I am yet to see the project closely.”
A spokesperson for L&T did not offer any comment for this story. GVK acquired the stake through wholly owned GVK Airport Developers Pvt. Ltd from L&T unit, L&T Infrastructure Development Projects Ltd.
GVK’s stakes in two key airports assume significance as its rival firm and Bangalore-based GMR Infrastructure Ltd already runs the Indira Gandhi International Airport in New Delhi and the Rajiv Gandhi International Airport in Hyderabad. GMR has expanded to Turkey to operate that country’s Istanbul Sabiha Gökçen International Airport.
After a lull, analysts are seeing a revival in airlines and the airport sector. “In August 2009, total passenger traffic grew by 17% year-on-year to 9.8 million, comprising domestic passengers of 7 million (up 22% year-on-year) and international passenger traffic of 2.8 million (up 6% year-on-year). This represents a second consecutive month of double-digit growth, supported by the lower base effect, as passenger traffic reported its first year-on-year decline in July 2008,” noted a 6 November report by domestic brokerage Motilal Oswal Securities Ltd. “However, there has been an improvement in month-on-month run rate. The average monthly run rate has improved from sub-9 million passengers per month to 9.5 million plus passengers per month.”
On 5 November, GVK acquired 12% of Bial from Zurich Airport for Rs484.6 crore. That acquisition was also priced at Rs105 a share.
“The L&T transaction for Bangalore Airport was dealt internally. It took two weeks to close this deal,” Reddy said.
In 2005, the public-private partnership project had an equity of Rs326.7 crore, nearly three-fourths held by the private consortium led by Siemens Project Ventures. Siemens has invested Rs130.68 crore for its holding, while Zurich and L&T invested Rs55.54 crore each for their 17% stake. Siemens needs to stay invested for at least three years before it can dilute up to 14% and seven years before it exits the venture. Zurich can sell up to 12% a year after the airport opens, according to the concession agreement signed between the promoters and the government in 2004. Airports Authority of India, representing the Union government, and a local government body, the Karnataka State Industrial Investment and Development Corp. Ltd, own 13% each in the firm.
“It makes sense for L&T to exit from the Bangalore airport as they had made a decent return on the investment,” said an analyst who did not want to be identified as he is not authorized to speak to media. “It would want to focus on its core business of construction.”