New Delhi: The GMR Infrastructure Ltd-led Delhi International Airport Ltd (DIAL) consortium, which is modernizing India’s second busiest international airport by traffic here in the Capital, plans to raise about Rs4,500 crore in debt from land lease rights for some 60 acres of airport land through a subsidiary, Delhi Aerotropolis Pvt. Ltd, to fund the airport’s development.
This is the second time DIAL is trying to raise funds through land rights via a subsidiary, after the first plan was abandoned over government objections.
Last year, DIAL had created two new subsidiaries and had sought to develop a hospitality district at the airport on a 45 acre land parcel by taking security deposits from realty developers amounting to about Rs2,835 crore through the same subsidiary.
The deposits were deemed refundable after 30 years while the realty developer was expected to pay a token annual licence fee. But, the plan was abandoned after fierce opposition from the civil aviation ministry, which told the operator to freeze the proposal as the financing model was likely to bypass a revenue-sharing agreement the operator had signed with the government when it secured the rights to develop the airport in 2006.
DIAL is of the opinion it cannot raise large debt on itself as, after sharing nearly 46% of revenues and paying out airport expenses, it would be left with limited reserves to service remaining debt, thus potentially stretching its debt service ratio coverage. But, since the revenue sharing clause may not be applicable on the subsidiary company, it can raise a bigger loan from financial institutions and thereby fund the expansion.
“These are the options available. The new proposal is still being worked out,” said GMR Group’s chief financial officer Ashutosh Agarwala, adding that it was too “premature” to talk about it. GMR Group’s founding chairman G.M. Rao declined comments.
Agarwala, however, added that “bridge financing” being applied now to fund airport construction will be “rolled back” as soon as realty plans are cleared by the government. He said the firm feels the airport and realty development are two different businesses and need to be segregated for better returns.
“The two businesses are so different when it comes to raising loans,” he said. “We are just saying let’s segregate the two. It will create hygienic business.”
However, given the past di-fferences of opinion, the new proposal is under close scrutiny, according to a senior civil aviation ministry official who asked not to be named, and is yet to be cleared.
Meanwhile, DIAL has also been asked to incorporate “suggestions” made by the ministry on the new proposal and “come back again with a fresh proposal,” said this official, declining to elaborate.
When asked if the new financial model may not be acceptable to the government, Agarwala said that the firm’s plans remained steadfast and concerns will be allayed. “Legally, our stand has been vindicated (of having subsidiaries). Any other concerns will be addressed,” he said.
The airport is leased to DIAL until 2036, extendable by 30 more years, under a concession agreement that seeks nearly 46% of gross revenues for state-owned Airports Authority of India (AAI) that was operating the airport.
DIAL has created two subsidiaries, Delhi Aerotropolis and DIAL Cargo Pvt. Ltd, for realty and cargo operations at the 5,050-acre airport site, of which it can use nearly 250 acres for commercial development.
In February, DIAL and the government decided to break the impasse and infuse fresh equity into the project as an alternative solution to taking security deposits. But now, the operator has approached the government once again to raise funds through a new financial structure.
Under this new plan, said a senior government official who did not want to be named, DIAL would transfer land lease rights of 60 acres to its wholly owned subsidiary Delhi Aerotropolis for 60 years. Retaining the ownership, the subsidiary would then construct hotels in 45 acres of the land without giving it out to a property developer but, later, hand over the management of the hotels to a private player. The remaining 15 acres will be for building access roads.
Financing of these hotels’ construction would be done by infusing part equity and part debt. “The debt will come from the bank, equity by the promoters,” the same government official said.
According to preliminary estimates, Rs6,000 crore—half of which would be required to build the hotels—can be raised through this plan. DIAL would raise debt to the tune of Rs4,500 crore in lieu of land lease rights, with the remaining Rs1,500 crore coming as equity from stakeholders.
Hyderabad-based GMR holds 50.1% in DIAL with Frankfurt airport operator Fraport AG and a unit of Malaysian Airports Holding Bhd each owning 10%. Private equity firm India Development Fund has a 3.9% stake, while the rest is held by AAI.
The operator has to complete the first phase of the project by 2010, in time for the Commonwealth Games, allowing the airport to add capacity of 17 million annual passengers to the nearly 20 million handled now. DIAL has earmarked Rs8,900 crore investment.