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Business News/ Companies / News/  GVK sells stake in Bangalore International Airport to Fairfax
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GVK sells stake in Bangalore International Airport to Fairfax

Rs2,149 crore deal with Prem Watsa's Fairfax for a 33% stake in Bengaluru airport operator will reduce GVK Power's debt by Rs2,000 crore

GVK Airport Developers had initiated a financing process last year to reduce its debt obligations to its lenders, the infrastructure firm said. Photo: Bloomberg Premium
GVK Airport Developers had initiated a financing process last year to reduce its debt obligations to its lenders, the infrastructure firm said. Photo: Bloomberg

Mumbai: GVK Power and Infrastructure Ltd has agreed to sell a 33% stake in Bangalore International Airport Ltd (BIAL) to India-born Canadian billionaire Prem Watsa’s Fairfax India Holdings Corp. and Fairfax Financial Holdings Ltd for 2,149 crore, seeking to raise money to repay debt.

On completion of the deal, GVK Power and Infrastructure’s debt will decline by 2,000 crore and its interest costs will drop by some 300 crore a year, the Hyderabad-based group said in a statement.

The transaction, which will reduce GVK’s stake in the airport to 10%, is subject to customary closing conditions and third-party consent, including the agreement of creditors, and is expected to be completed by the middle of 2016.

GVK Airport Developers, a subsidiary of GVK Power and Infrastructure, initiated a financing process last year to reduce its debt obligations, the infrastructure firm said.

“The infrastructure major received multiple offers, from which the Fairfax Group was selected," the statement said.

BIAL owns and operates the Kempegowda International Airport in Bengaluru under a 30+30 year concession agreement from the Indian government.

Siemens Project Ventures GmbH holds a 26% stake in the airport and Flughafen Zurich AG 5%. State-owned Airport Authority of India and Karnataka State Industrial and Infrastructure Development Corporation hold 13% each.

Goldman Sachs and DSP Merrill Lynch are the financial advisors to GVK; Cyril Amarchand Mangaldas is the legal advisor.

GVK Power and Infrastructure shares rose 6.43% to 7.12 on the BSE on a day the exchange’s benchmark Sensex fell 1.46% to 24,966.40 points.

“We chose Fairfax as a partner in Bangalore International Airport as we have a long-standing relationship with its chairman Prem Watsa and we would look forward to partnering with them in developing Kempagowda International Airport through its next stage of expansion as we develop a new world class Terminal 2 and a new runway," said G.V.K. Reddy, founder chairman and managing director, GVK.

Watsa, 65, founded Toronto-based Fairfax in 1985. He’s modelled his investment style and strategy after value investor Warren Buffett. Fairfax gained from the 2008 financial crisis when Watsa bet on declines in the creditworthiness of US banks and insurers.

According to the October 2015 edition of Credit Suisse’s House of Debt report, the GVK Group had consolidated debt of about 34,000 crore at the end of fiscal 2015. The report noted that profitability at GVK Power, in particular, remains weak.

“Debt/EBITDA (Earnings before interest, tax, depreciation and amortization) has increased to 32x, while debt-equity is now at 12.2x," said the report, adding that debt at the company had risen 10% in the last fiscal year.

The group has been attempting to reduce debt for some time now and has looked at various options.

GVK, which also runs the Chhatrapati Shivaji International Airport in Mumbai, considered selling a stake in its airport holding company but could not close the deal because of differences in valuation.

GVK also considered an initial public offer for its airport holding company, but held back because of poor market conditions.

“The positive thing is there is action due to pressure from banks and the regulator. The Bangalore airport is a prize asset. I see that as a tangible action on the corporate’s part. However, just getting 2,000 crore does not help the issue. There has to be a holistic solution at the group level from both banks and the borrowers," said Nirmal Gangwal, founder of Brescon Corporate Advisors Pvt. Ltd, a corporate turnaround firm.

Most debt-heavy firms have been attempting to sell assets. The 10 debt-heavy corporate groups listed in the Credit Suisse report have sold and announced the sale of assets adding up to 1.33 trillion since 2012, according to a 16 March Mint report.

The amount raised through assets sales is only 20% of the 6.52 trillion in total debt on the books of these groups as of March 2013. The money raised is even more insignificant when compared with the 7.33 trillion in debt that these firms had as of March 2015.

The 10 entities listed in the House of Debt report are Reliance Group, Lanco Group, Jaypee Group, GMR Group, Videocon Group, GVK Group, Essar group, Adani Group, JSW Group and Vedanta Group.

Debt levels have risen rather than fallen over the last three years and the debt-servicing ability of many of these firms has also deteriorated, Credit Suisse said in the October edition of the report.

Meantime, asset sales by highly indebted groups have created buying opportunities for new and existing investors.

In February, the Jaypee Group sold its cement business to UltraTech Cement Ltd for 16,500 crore, allowing the latter to consolidate its leadership position in the cement sector. Lenders to Jaypee Group had been pushing for the sale of its cement assets in a bid to reduce the group’s overall debt of over 75,000 crore.

In April 2015, Lanco Infratech Ltd completed the sale of its Udupi power plant to Adani Power Ltd for 6,300 crore.

Watsa said Fairfax Financial and Fairfax India will work closely with other shareholders of BIAL.

“We have great admiration for GVK led by G.V.K. Reddy and G. V. Sanjay Reddy in the outstanding work that they have done to develop Kempegowda International Airport to its current stature," he said.

“This is a partnership between Fairfax and GVK. We will work closely with all stakeholders to manage our stake in Bangalore International Airport Ltd going forward, and will support Sanjay Reddy to continue to lead the management team as managing director of BIAL and G.V.K. Reddy will continue as co-chairman of BIAL," Watsa added.

Amritha Pillay in Mumbai and Bloomberg contributed to this story.

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Published: 28 Mar 2016, 01:02 PM IST
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