One of India’s largest private airport operators, GVK handles about 44 million passengers every year through the Chhatrapati Shivaji International Airport in Mumbai, India’s first brownfield airport developed in partnership with the government. GVK also operates Bengaluru International Airport, India’s first greenfield airport developed under this model.  Photo: Bloomberg
One of India’s largest private airport operators, GVK handles about 44 million passengers every year through the Chhatrapati Shivaji International Airport in Mumbai, India’s first brownfield airport developed in partnership with the government. GVK also operates Bengaluru International Airport, India’s first greenfield airport developed under this model. Photo: Bloomberg

GVK unit in talks with PE, financial firms to sell stake

GVK Power and Infra plans to sell minority stakes in airports and roads projects by Dec end or early next year

Mumbai: GVK Power and Infrastructure Ltd is in talks with global financial institutions and private equity (PE) firms to sell minority stakes in its airports and roads businesses by December end or early next year, according to two company executives who declined to be named.

“We are in advanced discussions with more than two international investors for selling a minority stake in two of our verticals. The discussions around the valuations are on and we will be able to conclude the deal by this year-end or early next year," one of the executives said, without saying how much the company plans to raise through the stake sales. GVK had a debt of 18,564.03 crore as on 31 March.

A GVK spokesman declined to comment on the stake sales.

The second executive cited above said the debt is manageable and the company does not have any plan to sell the assets completely. The company is also looking to unlock value from its growing airports business, the official said.

One of India’s largest private airport operators, GVK handles about 44 million passengers every year through the Chhatrapati Shivaji International Airport in Mumbai, India’s first brownfield airport developed in partnership with the government. GVK also operates Bengaluru International Airport, India’s first greenfield airport developed under this model. The infrastructure firm is mandated to develop two airports in Indonesia as well.

Some analysts are unsure if the stake sale talks for the airports business will go through.

“Selling stake in roads business will be much easier as it is generating cash flows. For airports, selling stake at the project level will be difficult as Mumbai airport is still not fully operational. In Bengaluru airport also the firm does not hold a majority stake and will not be interested in diluting its stake further," said Vibhor Singhal, an analyst at PhillipCapital India, a financial services firm.

Of GVK’s four road projects, only one is operational—the 542-km road project between Jaipur and Kishangarh, which generates about 70 crore a year.

GVK has about 3,000 km of expressway projects under operations and development.

While the Jaipur-Kishangarh project generates decent cash flows, GVK had securitized the revenue from it for buying stake in the Bengaluru airport.

Construction work at Mumbai airport is not over. While the Bengaluru or Bangalore airport is profitable, GVK holds a minority 43% stake in it. “It is likely that the stake will be sold at the holding company level as the stake dilution will not impact GVK much. Also, proceeds generated through divestiture in road and airport business can be used to pay off the debt that was taken to acquire stake in Bengaluru airport. This can free the road project from debt," Singhal said, pegging quarterly revenues from the Mumbai and Bangalore airports at about 250 crore.

Another analyst said the Mumbai airport may not be a draw for investors if interest costs and depreciation are factored in.

“Once depreciation and interest costs come into the picture, Mumbai airport will post huge losses," he said, speaking on condition of anonymity. He added that none of GVK’s businesses is generating robust cash flows, a pre-requisite for an investor to come in.

Earlier this year, GVK sold a stake in its rail and port project in Australia that is being developed under GVK Coal Infrastructure (Singapore) Pte Ltd, or GVK Hancock. In March, GVK Hancock sold a 51% stake in the project to Queensland-based Aurizon Holdings Ltd for an undisclosed sum.

Many infrastructure firms in India are saddled with high debt and are looking to sell assets.

Since January, at least 10 Indian infrastructure companies have either sold assets or announced a sale to pare 3.58 trillion worth of debt, according to Mint research and an August report by Credit Suisse Securities Research and Analytics. Mint reported in October that about 50 road projects were up for sale across the country.

Reserve Bank of India governor Raghuram Rajan is positive about infrastructure companies looking to pare debt through asset sales.

“We need more of that," Rajan said in an interview last month. “Because it’s not that the system as a whole doesn’t have liquidity. There are companies sitting on tonnes of cash. Could they buy from these guys? Could foreign investors come in?... If the liquidity-strapped entities get financial space once again, they can then start bidding for projects; they can start fulfilling some of their past commitments."

As a remedial measure, Singhal of PhillipCapital said, GVK should not take up new projects at the moment and focus on divestment and completion of existing ones.

Having already invested over $4.3 billion, GVK has projects worth over another $6.6 billion in the pipeline in India. It also has about 6,000 megawatts of power projects under generation and development.

GVK acquired Australian coal mines in Queensland with 8 billion tonnes of reserves for $1.26 billion in September 2011, and envisages an investment of $10 billion for setting up mines, a 500 km rail link and a 60 million tonne per annum port project that will form one of the world’s largest integrated coal mining operations.

“GVK has bitten more than it can chew," Singhal said. “Divestment in airport and road alone will not be enough to re-pay the debt which has been taken at multiple levels."

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