PremiumThe peacock-inspired giant canopy of Chhatrapati Shivaji Maharaj International Airport in Mumbai looks a tad ostentatious in times of the pandemic. That’s not only because air traffic movement at India’s second-busiest airport has practically ground to a halt; few hundreds of masked fliers are barely noticeable in the T2 terminal designed to handle 60 million passengers annually.
What is more than evident is how the airport’s operating company Mumbai International Airport Ltd (Mial)—and its parent, the infrastructure developer GVK group—are constantly in the limelight these days.
The bad news doesn’t seem to be stopping for the Secunderabad-headquartered GVK group, which is being squeezed on multiple fronts. It faces downgrades, defaults and a severe cash crunch; raids by the investigative agencies; litigation by a minority partner; pressure from its bankers and partners; and a powerful competitor waiting in the wings.
To make matters worse, GVK group’s other businesses are in poor shape. That’s why the struggling group is desperately trying to protect its golden egg: the Mumbai airport, which reported 900-odd air traffic movements per day in the pre-pandemic era.
But today, Mial, where the listed group company GVK Power and Infrastructure Ltd (GVKPIL) holds 50.5% stake, is finding debt servicing difficult as airport operations continue to be in peril. In late May, Crisil downgraded Mial’s proposed non-convertible debentures of ₹2,000 crore, term loans against real estate deposits and other project loans.
No wonder the Mial board meeting on 3 July via video conferencing was unusually long. Its immediate concern was the delay in the new ₹16,000-crore airport that Mial is building in Navi Mumbai, an hour’s drive from the island city.
After Yes Bank pulled out of the Navi Mumbai airport project, the State Bank of India (SBI) stepped in a couple of months ago, but some pre-conditions are delaying the financial closure. Then, the government-run City and Industrial Development Corporation of Maharashtra (Cidco), which owns 26% equity in the Navi Mumbai airport, has raised concerns about a potential breach in the shareholder’s agreement for the new airport if Mial doesn’t quickly get on with project implementation.
To make life more complicated, South African company Bidvest, a minority partner in Mial, has now moved Delhi high court to oppose GVK’s bid to raise funds by selling stake in GVK Airport Holdings, a subsidiary of GVKPIL, to new investors.
Finally, earlier this month, CBI filed a first information report (FIR) based on an anonymous letter, accusing the GVK group chairman G.V.K. Reddy and his son G.V. Sanjay Reddy, managing director of Mial, of siphoning off ₹705 crore from the airport’s kitty. The Enforcement Directorate (ED) quickly followed up with a separate case pressing money-laundering charges, and raided offices earlier this week. It said Reddys would be called for questioning soon.
The investigation, currently underway, may not have any immediate impact on the airport operating company lying paralyzed by the pandemic. But the raids by the investigative agencies have sent out a shock wave in the infrastructure playing field where politics and business are seen as strange but necessary bedfellows.
“The delay in project execution will not have any serious impact (on the aviation industry) since the capacity bursting-at-seams situation at Mumbai airport has suddenly disappeared with covid-19. The pandemic has given a two-year breather to the Navi Mumbai airport," said Vinayak Chatterjee, chairman of Feedback Infra, a leading infrastructure services company. “But I am surely worried about GVK’s falling financial health," he added.
A questionnaire emailed to GVK drew a “No comment" from its spokesperson.
The Adani overhang
The CBI/ED twin investigation comes on the heels of Adani Group’s failed bid to buy into Mial and edge out GVK.
For the Gautam Adani-led conglomerate, which has already won the mandate to run six Airports Authority of India (AAI)-built non-metro airports in Lucknow, Jaipur, Guwahati, Ahmedabad, Thiruvananthapuram and Mangaluru, buying into India’s second-busiest airport made eminent sense.
Adani, which is a growing player in the real estate sector, is also keen on developing the land parcels available around these airports—the gilded carrot for airport developers. The huge land bank held by Mial (it holds 194 acres of land around the airport) is surely an added attraction for Adani.
However, its plans received a setback in January when an arbitration tribunal prevented a minority shareholder of Mial from selling its stake to a third party. Adani had signed a share purchase agreement to buy out Bidvest from Mial. But GVK rejected it and chose to exercise its first right of refusal, and matched the ₹1,248-crore offer that the Adanis made to Bidvest.
“It’s our right and we are not going to leave it," said an official from Mial on condition of anonymity.
Bidvest has now taken the fight to Delhi high court. Irked by a long delay in its proposed exit from Mial, Bidvest has moved the court against GVK’s move to sell 79.1% in its GVK Airport Holdings to three new investors—National Investment and Infrastructure Fund (NIIF), PSP Investments of Canada, and the Abu Dhabi Investment Authority (ADIA). Bidvest has argued that since GVK Airport Holdings owns 50.5% in Mial, any change in the holding company will reduce GVKPIL’s stake and give substantial indirect stake to the new investors.
Any breach by GVK or other investors poses the danger of termination of the Navi Mumbai airport concession agreement and it could substantially erode the valuation of its shareholding in Mial, Bidvest has said in a Delhi high court filing.
On the matter of land, the steady fall in commercial real estate prices in Mumbai has jeopardized Mial’s plans to monetize the land it holds around the current airport. Of this, it has monetized only three parcels so far totaling around 6 acres. A company representative said it is in talks with the Canadian Brookfield Asset Management for developing the land parcel. “Because of covid-19, there is a delay in signing the deal," said the Mial board member quoted above.
Actually, a deal in existing conditions would mean less realization for Mial. On the other hand, even if it wants to sell it without realizing the actual value, it can’t because it will trigger the government probe as the AAI holds 26% stake in the company.
The rating agency said the delay in monetizing real estate may result in liquidity challenges for upcoming debt servicing on real estate deposit (RESD) loans, which are meant to be serviced through the monetization.
The new airport
The delay in financial closure is holding up the Navi Mumbai project. The new banker SBI has agreed in principle to underwrite and fund the project. It has, however, put forth a precondition that the entire land should be made available unencumbered before they start releasing funds.
Exactly a year after Hardeep Singh Puri, the minister of state for aviation, told the Lok Sabha in a written statement (on 25 July 2019) that the land acquisition for entire 1,160 hectares of the core airport area had been completed by the state government, land acquisition continues to be a big hindrance.
While GVK claims that only up to 80% of the total land is available now, Cidco insists that 97% of the land is ready. “Of the total land required for the work to start, only 4 hectares remaining to be acquired, with 93 structures having to be removed. These structures, mostly houses and small temples, are spread over the area," Prashant Narnaware, joint MD of Cidco, said.
An independent committee headed by a retired civil servant is meeting the project-affected people to clear individual cases. “We are trying to complete the process as quickly as possible, but due to covid-19, there is an unavoidable delay. Being a government agency, we can’t hurry with evictions during the pandemic and the monsoons," he added.
Cidco had meanwhile dashed off a letter to GVK, quizzing it about the financial health of the group. “We have received a response saying GVK is ready to execute the project. They should go for the financial closure and start the work quickly. They can’t keep blaming Cidco for the delay," said Narnaware.
The Mial official quoted earlier said Cidco had given deadlines of 31 December 2019, and then 31 March 2020, both of which have lapsed. When the board met on 3 July, there was no fresh commitment from Cidco on the land acquisition. “They are working towards it. It is true that the project is running behind schedule. You know, in India, when villages have to be moved, it takes time," said the Mial board member.
So far, Mial has invested around ₹2,000 crore in the equity of the Navi Mumbai airport company. With huge capacity lying unused in Mumbai, thanks to covid-19, the delay in the new airport doesn’t look that critical at the moment. “When services resume to 100%, there will still be capacity available at the existing infrastructure. This gives the operator some breathing space for Navi Mumbai airport," said aviation analyst Ameya Joshi.
GVK’s finances
While the delay in the Navi Mumbai airport is a rare silver lining for the GVK group, the fact remains Mumbai airport accounts for nearly 90% revenues of GVKPIL, which is accumulating losses due to various reasons. The total loss for the nine months ended December 2019 aggregated ₹387.92 crore, much more than the loss of ₹265.89 crore it reported for the corresponding nine months of the previous financial year.
In a filing to the stock exchange on 14 February, the company disclosed that the group delayed payment of loans and interest, and certain loan accounts were classified as non-performing by banks. While two power plants were mothballed for five years due to lack of gas supply, a coal-fired plant struggled with fluctuating coal prices following the rebidding of a mine earlier allotted to the group.
The pandemic has disemboweled India’s hospitality industry, and TajGVK, 50% owned by GVK group, is no different. The management has shut down four hotel properties and the other two are operating with minimum staff. Taj Deccan in Hyderabad is open for business while Taj Santacruz is open for medical staff and other guests too. They are operating the hotels with a skeletal food and beverage services and staff.
A company official said most of the staff was sent on leave without pay. “Almost 70-80% staff is outsourced and will be back on duty when the hotels reopen," he said on condition of anonymity.
A downgrade by rating firm ICRA in June has made the company’s lenders nervous. “Hotels, including TajGVK, have high operating and financial leverage, making these highly susceptible to any reduction in revenues… The sharp contraction in revenues will impact the company’s liquidity position, given that TajGVK would still need to incur non-deferrable fixed expenses," said the rating firm.
In conclusion
As of now, Mial looks severely cash-strapped with its working capital availability sinking to a paltry ₹130 crore as of 12 May 2020, according to Crisil. While its ability to generate quick funds remains in doubt, the company is staring at a debt servicing obligation of over ₹200 crore for project loans.
The unexpected breakdown in airport operations has forced Mial to look for options such as deferment of revenue share payments to AAI and additional debt financing. Feedback Infra’s Chatterjee hoped that GVK group would be able to get SBI and other lenders on board, and get on with the project implementation as quickly as possible. For GVK, it is crucial now to get the Navi Mumbai project off the ground . That at the end of the day is the only way it can prove its credentials as a financially-stable developer.
Anto T. Joseph is a senior journalist based in Mumbai
