Greater clarity on future revenues and the successful listing of a Spanish airport operator are prompting India’s airport developers to approach the local capital market, which has seen several companies going public recently.

Hyderabad-based infrastructure conglomerate GVK Group is planning an initial public offering (IPO) of its airport holding company in September. Its Bengaluru-based rival GMR Group, also in the airports business, has similar plans to raise capital and reduce debt. The government, meanwhile, is planning to corporatise and sell shares of the Airports Authority of India (AAI).

In 2010, the Airports Economic Regulatory Authority (AERA) said it would regulate tariffs only on airports’ aeronautical activities (those related to core flight operations) and not their non-aeronautical revenues such as those from leasing out space for shopping and entertainment.

According to industry experts, airport operators who earn a large part of their revenues from the non-aeronautical side say the time is right to approach the capital market, which was stagnant when the tariff decision was made.

Airports have also been able to maximise revenues from their real estate assets in the absence of any regulation in the area, said an aviation consultant, speaking on condition of anonymity. Airport assets in India were less attractive until AERA said it would not consider non-aeronautical work to calculate airport tariffs, he added.

A person familiar with GVK’s plans said the group is “upbeat" about the planned IPO. “The company will file a draft red herring prospectus with capital market regulator Securities and Exchange Board of India shortly," the person said, requesting anonymity.

The group will utilise the proceeds to retire its debt worth around 3,000 crore. GVK plans to club all its Indian airport units under GVK Airport Developers before listing. An IPO will make GVK Airport Developers Pvt. Ltd the first airport developer to be publicly traded.

Passenger and cargo revenues grew 12.5% and 11%, respectively, in 2014-15, government documents show. The successful IPO of Spain’s airport operator Aena SAhas also encouraged promoters in February. It raised $4.9 billion in an IPO.

GVK runs airports in Mumbai and Bengaluru. GVK Power and Infrastructure Ltdalso builds roads and power plants.

“GVK has plans to bid for new airport development projects coming up in India including Chennai, Kolkata and Goa. Besides, Mumbai International Airport Ltd, a joint venture of the GVK Group that is running the Mumbai airport, has the right of first refusal over the Navi Mumbai airport project," the person added. This means if another developer outbids GVK by a 10% margin, then the airport company can match the bid and build the Navi Mumbai airport.

In March, Reuters reported that GVK Power is likely to raise up to $250 million via the IPO of its airport unit. It also said that GVK has mandated Citigroup, Bank of America Merrill Lynch, Axis Capitaland JM Financial Servicesto manage the IPO, citing unnamed sources.

“Investments in airports are costly and lumpy. There are low profit margins on the aeronautical side. Airport profitability comes largely from the non-aeronautical side of the business. The returns are spread over a very long period," said Amber Dubey, partner and India head of aerospace and defence at audit and consulting firm KPMG. “Given the absence of pension funds in India, the tenure of the long-term debt in India is far shorter than the concession period. That creates challenges in debt servicing for the airport operators."

Dubey said reforms in the Indian aviation sector may encourage airport companies in India, including the government-owned AAI, to go for IPOs.

“The macro and micro fundamentals appear positive. Raising funds from the capital market would help airport companies pare debt and fund capital investments in air-side and terminal infrastructure. There are new airports coming up in India like Navi Mumbai, Goa, etc., and abroad, which will also require significant investments."

In November 2014, Union civil aviation minister Ashok Gajapathi Rajusaid AAI will be corporatized followed by its listing on the stock exchanges to improve efficiency and transparency.

GMR Group is also preparing for listing its airport unit. In July, GMR Group’s chief financial officer Madhu Terdalsaid that the company is contemplating selling shares of GMR Airports Ltdwithout disclosing details and a time frame. Later, the GMR Group delayed the share sale plan, citing poor market conditions. “India has a strong airport story playing now. Aena’s successful IPO has further cemented the confidence of airport developers in India," said a second airport consultant, requesting anonymity. However, the depressing real estate market and volatile capital markets can spoil attempts to take these ventures public, the consultant added.

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